Real estate investor Nery Alaev explains some of the secrets of the Austrian and German property markets and offers tips on how to succeed.
How did you get started in the real estate industry?
Nery Alaev: Like most people, I started by learning, and for me that began with a bachelor’s degree in economics from the University of Chicago. I then completed my masters at Columbia Business School in New York. In 2010, I founded ESN Investments GmbH, which acquires and develops commercial and residential property in Germany and Austria.
What are the biggest changes you’ve seen over the years?
Nery Alaev: Well, 20 years is a long time, and we’ve seen a lot of change in the real estate industry. Probably the most obvious shock was the financial crisis of 2008 and 2009, which started in the US housing market and rippled around the world.
But in Germany we didn’t really see a slump in property values. In fact, they began a fairly spectacular rise around 2010, partly because demand increased or remained constant while construction dropped. Germany’s housing market is also very different from most of Europe’s, in that there is a relatively low level of home ownership.
In Austria, the crisis prompted a drop-off in house prices, but they have recovered steadily and are now well above where they were beforehand.
How has the business environment changed for investors during your career?
Nery Alaev: There have been many changes over the past 20 years, but I think one of the biggest changes has just happened in Berlin, as it could well influence the rest of Germany and even beyond. The city government has approved a five-year rent freeze, which is likely to come into effect in early 2020.
This has come in because rents have really risen sharply there over the past few years, even though they have rent controls.
Lots of countries are grappling with housing shortages and rising prices, and many of them are looking at the relative stability of Germany’s housing market as a possible model for their own.
What about Austria? What are the main trends there?
Nery Alaev: It’s noticeable that the cost of renting in Austria has increased only moderately compared with the price of buying. House prices have gone up something like 85% in the last 10 years. The difference is partly because the Rental Act caps the rent of many rented living spaces.
In terms of a tip for where developers may be focusing their efforts, we might see more clusters of offices outside residential areas, especially in Vienna and the other major cities.
What do you think is the future of the rental market in Austria?
Nery Alaev: I think the rental market is in a very interesting and challenging situation in Austria for investors, because the cost of buying properties is increasing but rent caps prevent rents from increasing. This means investors make less money.
If the rent caps remain in place, then the only way to increase rental yield is by building more apartments and houses to reduce the cost of buying.
Is there enough construction activity to keep pace with demand?
Nery Alaev: There was a concern that there wasn’t enough building back in 2016, but that eased with more new-build projects being completed, so overall supply of new housing went up between 2013 and 2017. However, it might be dropping again, as I saw statistics that showed approvals for new apartments were down in early 2018. This trend is still not totally clear, so I will be interested to see the next batch of statistics.
Without increased supply house prices will continue to climb, and that puts pressure on the investment market.
With rental yields down what is the attraction for investors?
Nery Alaev: The challenge for any investor is to be positioned to take best advantage of the current situation while also being ready for change. As an investor in Vienna, yields are still acceptable in many parts of the city. Innere Stadt is challenging, because the very high property prices mean yields are down around 2%, but for small apartments in places like Landstrasse, Leopoldstadt and Mariehilf the yields are still nearly 5%.
From a broader perspective, I believe the big attraction is that the city is full of potential if you are smart and do your research.
Vienna has an incredibly rich history and culture, as well as a vibrant local economy built around a highly skilled workforce, so it will always attract people to live and work here. As patterns of migration and society change, opportunities will arise. For example, Brexit may see thousands of UK-based workers return to Europe and so push up rental demand.
What’s your advice for new investors?
Nery Alaev: I think the advice to new investors is, first, get your financing right. You need to think about how much you have and how you are going to use it. This has a direct impact on how much risk you are willing to take. After that, you must really knuckle down and do your research, understanding the nitty gritty of how any given property will affect the returns on your investment.
Once you have your money sorted and you have good grasp of how the market works, you can then start looking for the specific opportunities. I always advise new investors to build their portfolio slowly and be prepared to put money into their properties to improve them to increase rental yield. It’s a balancing act between putting money in and taking it out.
Nery Alaev is a real estate investment expert living and working in Vienna. You can visit his website at https://www.nery-alaev.at/