Given the recent spike in Chinese investment in Central Eastern Europe (CEE), Chinese investors appear to be turning their attention towards Austria – in particular, Austrian real estate – as a new investment opportunity in the wake of dwindling investment opportunities in once popular markets in North America.
Investment stats underscore China’s newfound interest in CEE. Chinese business now leads foreign investment in this region, having increased its stake in CEE by 78% to EUR 7.7 billion in 2017 alone.
The Chinese push in CEE has corresponded with a drop-off in investment in North American due to new investment regulations and saturated markets in key areas, such as western Canada.
With the U.S. and Canada now less attractive to some Chinese investors, are Asian businesses now turning their sights on new CEE markets, such as Austria?
The answer appears to be yes. (Or at least, a strong maybe.) In 2017, China’s Ambassador in Vienna, Li Xiaosi, announced plans to add Austria to the China-CEEC cooperation initiative, which was created to expand business ties between China and the countries in CEE, both in the EU and southern Europe.
Austria’s newly elected government responded by passing a government programme that committed the country to participating in China’s Belt and Road Initiative (launched to expedite trade between China and Europe), and generally pursuing stronger economic ties with Beijing.
Analysts predict that these moves will soon translate into an increase in Chinese investment, although it is still not clear where.
The Austrian tourist industry, with its infrastructure of hotels, ski hills, and lakeside resorts, is considered a prime target for foreign investors.
But given Vienna’s moderate real estate prices compared to other CEE markets, analysts see property as Austria’s most lucrative opportunity.
With Germany and Russian investors already active in Austrian real estate, property prices are on the rise, and profits in the coming years are expected to be high.
European investors have been drawn to the Austrian property market because of the country’s central location in Europe, and its stable and secure legal environment.
Austrian real estate is particularly popular, however, because of the nation’s well-organised and digitalised land registry system, and its highly flexible real estate laws.
As for the law, Austria recognises three types of property rights: the Right of Ownership, Residential (or Condominium) Rights, and the Right to Build.
The Right of Ownership gives an owner full authority to make use of a given property. Residential Rights divides property between different property owners, and gives each owner the right to sell or rent an apartment or condo in accordance with the Condominium Act.
The Right to Build gives a rights holder the authority to possess an entire building on or beneath a given plot. (Building rights are granted for a minimum of ten years and a maximum of 100 years, and can only be prematurely terminated under exceptional circumstances.)
Foreign investors are free to purchase Austrian real estate, although the land transfer authority must approve all foreign acquisitions. This approval process includes legal entities with a foreign seat, or Austrian-based entities owned by foreign interests.
As for taxes, the Austrian real estate transfer tax is currently 3.5% of the purchase price, although this tax drops to 0.5% in deals where property is acquired through the acquisition of at least 95% of a company’s shares.
A fee of 1.1% of purchase price is charged for changing the property rights in the Austrian land register, although this fee does not apply to share deals.
In light of these conditions, which have made Austria a popular target for European investment, Chinese investor enthusiasm may be tempered by recent changes to laws restricting certain “outbound” investments.
In late 2017, China issued the ‘Notice on Further Guiding and Regulating the Directions of Outbound Investment,’ which prompted the National Development and Reform Commission to categorise foreign real estate as a “sensitive” investment sector, subject to regulation.
In response, CMS representative offices in China have been able to assist companies in obtaining regulatory approval for foreign real estate investments and acquisitions.
And CMS’s Austrian office (CMS Reich-Rohrwig Hainz) is in place to liaise with Chinese counterparts to expedite acquisitions in Austria for Asian clients.
For further information on investment opportunities in Austria and China’s current regulatory environment, feel free to contact CMS’s legal experts: Nikolaus Weselik (Partner).
