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The real estate industry is facing a difficult period, with rising interest rates, lower property prices and higher construction costs threatening to lead to further upheavals and bankruptcies. Gerhard Weinhofer, managing director of the creditor protection association Creditreform Austria, believes that this is not solely due to the economic environment but also to the long-standing zero-interest policy which allowed for cheap financing of real estate projects and subsequently triggered a boom in the market.

Weinhofer argues that the cheap money for two decades acted like a drug and cannot be left abruptly. With the long-term upswing in the sector over and rising interest rates making loans expensive, project financing has become noticeably more difficult. This has put consumers under increasing pressure, many of whom can no longer afford to own their own home.

The situation has led to an increase in demand for rental properties while supply remains relatively stagnant. As a result, rents have risen and this is likely to continue especially for apartments that are not subsidized. Despite this, Weinhofer does not expect an acute housing shortage but rather a worsening of the situation, particularly in eastern Austria where population growth is occurring.

According to a recent analysis by credit insurer Acredia, from January to September 2013, 667 domestic construction companies filed for bankruptcy which represents a 16% increase compared to the same period last year. This trend suggests that turbulence in the real estate sector is leading to an increase in bankruptcies among domestic construction companies.

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