May 28, 2014 5:01 am

Russian and Ukrainian buyers run into obstacles in Vienna’s property market

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C4YDJT Tram on Operring Ringstrasse street Innere Stadt central Vienna Austria central Europe©Alamy

Destination of choice: Vienna’s grand Ringstrasse is an area of key interest to potential foreign buyers

Given its position as one of western Europe’s easternmost capitals, Vienna has long been an obvious destination for wealthy Russians and Ukrainians as they look to gain a toehold in the west. In recent years, the Russian and, to a lesser extent, the Ukrainian presence in the city has become more prominent.

Buyers from the two countries have snapped up property in the elegant first district, and in the leafy outlying districts of Hietzing and Döbling. And on the grand Ringstrasse, which encircles Vienna’s Baroque centre, Russian-language tour buses are a frequent sight.

“Almost every shop in the first district now has at least one employee who speaks Russian,” says Richard Buxbaum, a property agent at Otto Immobilien.

What the crisis in Ukraine might mean for Vienna’s property market is an intriguing question. Average prices have risen more than 80 per cent since 2000. Foreign buyers have helped drive rates per square metre to as high as €30,000 in the city centre.

Precise figures are hard to come by, because Ukrainians and Russians often buy property via companies registered abroad. Specialists in the Vienna market note that at the start of the crisis, there was a sharp increase in interest in Viennese property from Ukrainian buyers.

More recently, however, Ukrainian interest has tailed off. One reason, says Mr Buxbaum, is that since the EU introduced sanctions on a number of individuals close to the former Ukrainian president Viktor Yanukovich at the end of February, vendors have been wary of Ukrainian buyers.

Stefan Brezovich, from the Viennese property group ÖRAG, takes a similar view. “There was a slight increase in interest, just as there was during the crisis in Cyprus. But it hasn’t translated into purchases,” he says.

“Anti-money laundering rules are strict. You have to be able to prove where the money for a purchase comes from, so it isn’t easy to buy a property that quickly, especially if the money is coming from outside the EU,” he adds.

Russian interest has slowed, says Mr Buxbaum, but he puts this down to the depreciation of the rouble, which has made Viennese property more expensive for Russians, rather than to geopolitical factors.

“There has been no sign yet of Russians wanting to repatriate money to avoid sanctions. And real estate is taking up a bigger share of their portfolios,” he says.

Others disagree, arguing that the slowdown in Russian interest is directly linked to political developments. “The [Russian] money is very mobile and on the lookout for safe havens. Vienna is certainly a safe haven, but EU sanctions have caused some uncertainty in the short term,” says one leading figure in the Viennese property market.

Beyond its location, there are a number of reasons that explain Vienna’s attractiveness for eastern buyers, says Alexander Neuhuber, who runs Magan, a group that advises property investors.

“Vienna is attractive because it has good transport connections with the rest of the region. You can get direct flights to many big cities in Russia and Ukraine,” he says.

“There are also historical reasons why Vienna is popular with Russians: Austria is neutral, and is not a member of Nato, which makes Russians more comfortable here.”

Vienna’s stable legal and political conditions also play a key role. “For people who are concerned about security – which is something we in the west perhaps take for granted – Vienna is very attractive,” says Mr Brezovich.

“The quality of life is also very high, and the education system is very good, which makes Vienna appealing for those who want to settle their families here.”

As a result of this range of attractions, observers expect that the market will pick up again in the medium term.

“If there is another change in the market, I expect it to be an increase in inflows, rather than an increase in outflows,” says Mr Brezovich.

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