Gerhard Weinhofer, the managing director of Creditreform Austria’s creditor protection association, believes that real estate bankruptcies will increase in the near future. The real estate industry is facing a toxic combination of rising interest rates, declining property values, and higher construction costs, which could lead to further upheavals and insolvencies.

According to Weinhofer, the economic environment is not solely responsible for the industry’s difficulties. It was influenced by the long-standing zero-interest policy, which allowed for cheap financing of real estate projects and contributed to a market boom and high profits. This raises questions about whether companies have built up sufficient reserves from their profits to weather the inevitable downturn.

Weinhofer stated that the cheap money for over two decades acted like a drug and cannot be abruptly stopped. The long-term growth of the sector has come to an end, and rising interest rates have made loans more expensive, making project financing significantly more difficult. Consumers are also under increasing pressure as they can no longer afford their own homes.

The impact of these developments on rents and the construction sector is evident. As demand for property increases while supply remains relatively constant, many consumers are being pushed into the rental market. This trend is likely to drive up rental prices, particularly for apartments that are not subsidized.

While Weinhofer does not expect an acute housing shortage, he believes that the situation will worsen in eastern Austria where population growth is occurring rapidly. The turbulence in the real estate sector has already resulted in an increase in bankruptcies among domestic construction companies. According to a recent analysis by Acredia credit insurer from January to September 2013 alone, 667 domestic construction companies filed for bankruptcy – a 16% increase compared to the same period last year.[