Austrian real estate market, especially in Vienna, is quite appealing for the investors from around the world. The prices for the apartments in Vienna are not that high as in New York or in London and overall trend of the investment’ price is going up from year to year. In this report we are going to describe the process of investment in Viennese real estate market, the procedure and requirement to meet so that the whole process would be successful.
How to choose the object of the investment
If you do not have specific investment offer from the developer or broker you will have to choose the real estate among those, which are offered at the market. In case your budget is not high, as was the case of our client, and you are looking at the apartments in Vienna with the price range between €200000 and €250000, you will be offered not much, but you will find some objects really nice.
We were analyzing three different apartments: 2 apartments in 3rd district, and 1 apartment in 16th district. The size of each apartment is approximately 40 sq. meters. The apartments were either in the newly build apartment residence or in just recently renovated old building, which are quite appealing for the foreign investor. All apartments have living room, 1 bedroom, floor heating, separate toilet and bath. The apartments are fully renovated and ready to move in, so the investment does not need extra spending.
In our case, the apartments in 3rd district were much more attractive due to the fact that they were built just months before, they had modern design and 3rd district is quite appealing for the lessees. In comparison, 16th district is called “Turkish district” due to the substantial number of Turkish immigrants or residents of Turkish origin, which might affect how easy you will rent the apartment.
In addition, to the district matter we had considered that the apartment in 16th district was offered in old building, so called “alt Bau”. Due to the current legislation, the rent price in old buildings will be limited to the price established by the Vienna authorities. For example, it can be €5,60 per 1 sq. meter, which will result in €224 of rental income, which will be reduced by taxes and maintenance costs, which put the investor with little or any income.
Purchase procedure
Austrian real estate market is highly regulated. If you are EU resident or if you invest through the legal entity with EU residents – shareholders, you do not have any restrictions, so do not consider what is written below and go to the next chapter.
If you are a non-EU resident, or the legal entity has non-EU shareholders, you will face the obstacle from the local authority, which regulates property market and may reject international investors to buy the real estate in Austria. Therefore, you have to plan the structure of ownership before you start to look for the real estate. The vital would be to mention that the majority of shares should be in possession of Austrian resident and the residency of the director should be carefully checked.
It is important to understand that all the documents, contracts, technical description of the object are in German, as such, the good translator and assistance of the local professionals (broker, director, consultant) are needed.
Considering the abovementioned details, the overall purchase procedure is as follows:
- Checking the documents of the real estate
- Provide the seller with the offer, at which price the investor is ready to buy
- Signing of the Initial Offer for purchase (may be optional) – but can be a good point as it fixes the desirable object under the Purchaser’s name and the Purchaser can negotiate the mortgage in the banks
- Negotiations with the Austrian banks to finance the purchase
- Once the confirmation from the bank is received, the Purchaser is finalizing the deal with Seller
- Signing the Sales agreement (Kaufvertrag) and transferring the purchase amount to the Seller
- Preparing the object for lease (purchase of kitchen furniture and necessary equipment)
The time frame for the purchase procedure is 1-2 months depending of the joint efforts of all parties, which participate in the deal.
Expenses
Expenses is one of the vital issues to be carefully considered before entering into the deal. As all the local brokers in Vienna would mention, consider the total will be up to 10% of the value of the property. If we are going into more details, then the expenses will include the following:
|
Registration of the transaction and tax payment |
3,5% of the value |
|
Registration in the land book |
1,1% of the value |
|
Notary fee |
1% of the value (average) |
|
Broker fee |
3% (+ 20% VAT) of the value |
In case if you need to finance the deal, additional costs will include the fee of the broker if they will negotiate it with the bank on your behalf. The broker fee can be 2% of the amount of loan. Additionally, the bank will charge additional fee 1-2% for the loan consideration and provision.
However, it is worth to mention, that the investor may add all the expenses, he/she needs to pay to the amount of the loan and the bank will provide financing for them too.
Additionally, if the investor is working with professional tax or finance consultant, as we are, then he/she will need to cover the expenses of those as well. The rate of the consultation may vary from one to the other, it can be fixed rate, or charged by hours spent on the matter. And, not to forget, that there will be reimbursement of travel, hotel and telephone expenses, if any.
Investment income
As we had pointed out right in the beginning of the report, our aim was to buy the property and then to rent it, to receive rental income. After we had finalized the deal, we had engaged with the broker to find the perfect tenant for the apartment. In our case, the rental agreement had to be signed for 5 years, so the investor will not be engaged with constant management of the apartment.
It took us 5 months to find the ideal candidate for the rent and we had signed the rent agreement for 5 years.
Below please find simplified calculation of the investments and income concerning our project:
|
Name |
|
|
Netto |
VAT 20% |
Brutto |
|
Kaufpreis netto |
224 000,00 |
224 000,00 |
|||
|
Grunderwerbsteuer |
3,50% |
7 840,00 |
7 840,00 |
||
|
Eintragungsgebühr Grundbuch |
1,10% |
2 464,00 |
2 464,00 |
||
|
Honorar Vertragserrichtung |
1,50% |
3 360,00 |
672,00 |
4 032,00 |
|
|
Barauslagen, inkl.Notar |
550,00 |
110,00 |
660,00 |
||
|
Makler Provision |
3% |
6 720,00 |
1 344,00 |
8 064,00 |
|
|
Gesamtkosten |
|
244 934,00 |
2 126,00 |
247 060,00 |
|
|
Kitchen |
5 000,00 |
5 000,00 |
|||
|
Assistance |
1 200,00 |
240,00 |
1 440,00 |
||
|
Total |
|
|
251 134,00 |
2 366,00 |
253 500,00 |
|
|
|
|
Brutto |
Tax |
Netto |
|
Rent per month |
850,00 |
10% |
765 |
||
|
Income per year from rent |
10 200,00 |
10% |
9180 |
||
|
Return on investment, year |
|
|
|
4% |
|
All numbers are in Euro
The estimated investment income is 4% brutto per year.
However, some may claim, that this is not a high return, we believe that in 10 years this apartment will cost almost twice higher than in 2018 and investor will not only get the invested amount back, but also will have profit on it and, at the same time, will receive his 4% yearly income, considering that the same tenant and the same rent price will remain for the 10 year period, which is unlikely, considering the high demand for the property and constant rise of the prices in Vienna.
To sum up, in highly unstable and unpredictable world we are all living now, we believe it is worth considering the investment into real estate market, where it has high demand for rent. It can be a good diversification along with equities and start-up investments.
We will be happy to assist you with your queries regarding investments in real estate, please send us an email or contact us using our contact details here Contacts.
Prepared by Olena Bokan