Vienna, Austria

I’m in beautiful Vienna this week for a few days visiting our good friends at Valartis Bank located on the Rathaustrasse in the university district. The architecture this time of year is especially mind-blowing. I urge anyone who has never been to Vienna to make a visit. Despite this being my 35th trip since the late 1990s, I’m continuously in awe of this magnificent capital.

At lunch yesterday, my colleague and old friend, Patrick Doherty, reminded me that some markets in Europe are selling at all-time highs. “Stocks might be struggling but that’s certainly not the case for real estate in Eastern Austria. I just purchased my first dwelling a few months ago. Real estate is at an all-time high in many parts of Vienna and not only survived the credit crisis but, in some cases, actually thrived.”

Real estate prices soared in Eastern Austria in 2009 as investors scrambled for safe investments amid a meltdown in equities and credit markets.

Real estate firm Raiffeisen Immobilien Vermittlung (RIV) said: “Record prices were paid for high-quality, privately-owned apartments and houses with good locations, especially in Vienna.” RIV added that price increases for single family houses in Stockerau and Korneuburg, Lower Austria, rose 55% and 40%, respectively.

RIV manager Peter Weinberger said areas north of Vienna had seen the largest price increases. “Korneuburg, Stockerau and Tulln districts have profited enormously from this trend,” he added.

Weinberger said that some areas had not experienced price increases, such as Lower Austria’s Amstetten district. “In that industrial area, demand for housing has decreased owing to the recession, more part-time work and higher unemployment,” he said.

Innsbruck is the most expensive provincial capital for apartment rentals, commanding a monthly rental price of €10.70 EUR per square meter with Salzburg in second place at €9.00 EUR, according to the Austrian Times.

Can real estate in Europe defy the trend in rising deflation? I wonder. It seems to me the European Central Bank (ECB) has set a course to slow the economy vis-à-vis encouraging harsh spending cuts in the Club Med countries and other deficit-plagued EU nations. I highly doubt Austria or any other EU country will escape the wrath of deflation if central banks lose the war against falling prices.

For now, bond markets in Europe are telling investors that central banks are losing control of the economy as several bond markets hit new highs, including France on Friday as short-term yields crashed.

I’m off to Café Landtmann where I will feast on wiener schnitzel and perhaps treat myself to an Austrian pastry. Dugald will comment on the technical direction of the markets tomorrow. See you Thursday from Zurich.