• Wed. Nov 29th, 2023

Austria’s Construction Industry Braces for Increased Bankruptcies Due to Addiction to Cheap Money


Nov 20, 2023

As the managing director of Creditreform Austria, Gerhard Weinhofer believes that the real estate industry is facing a toxic mix of rising interest rates, lower property prices, and higher construction costs. These factors could lead to further upheavals and bankruptcies in the sector. While Weinhofer acknowledges that the economic environment has played a role in the industry’s difficulties, he believes that it was also influenced by the long-standing zero-interest policy, which allowed for cheap financing of real estate projects and triggered a market boom.

The cheap money provided for two decades acted like a drug and cannot be abruptly stopped. The long-term upswing in the sector is over, and rising interest rates have made loans expensive, making project financing noticeably more difficult. This has put consumers under increasing pressure and many can no longer afford to own their own home.

These developments have had an impact on rents and the construction sector, with demand for property increasing while supply remains relatively stagnant. As a result, many consumers are being pushed into the rental market, which is likely to further increase rental prices, especially for apartments that are not subsidized.

Weinhofer does not expect an acute housing shortage but believes that the situation will get worse, particularly in eastern Austria where population growth is occurring. The turbulence in the real estate sector is already contributing to an increase in bankruptcies among domestic construction companies. According to a recent analysis by credit insurer Acredia, from January to September 2013, 667 domestic construction companies filed for bankruptcy, which represents a 16% increase compared to the same period last year.

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