Vienna homes are a fifth too expensive - central bank

VIENNA Mon Jan 20, 2014 5:36am EST

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VIENNA Jan 20 (Reuters) - Vienna residential property is more than a fifth dearer than economic fundamentals would justify, after a boom that has left the rest of Austria behind, the central bank said on Monday when unveiling a new price index.

But it played down risks to the country's financial stability, citing only slight growth in property lending and relatively low household debt nationwide. That suggested people were buying homes with savings rather than debt.

Residential property prices across Austria rose 39 percent from early 2007 to the middle of 2013, the sharpest rise of any euro zone country, the Austrian National Bank said.

Low borrowing rates and unattractive yields on other investments fuelled the move, sparking demand that outstripped supply, but this did not necessarily mark a property bubble when taking demographic and economic factors into account, it said.

Based on these fundamental factors, Vienna property showed increasing overvaluation that hit 21 percent in the fourth quarter of 2013. Austria as a whole was 8 percent undervalued.

"There is no bubble if prices rise as a result of adjustments for changing fundamental factors. You can speak of a bubble only if prices diverge sharply from those justified by economic fundamentals for a longer period," it said, but added it would continue to monitor developments. (Reporting by Michael Shields; Editing by Hugh Lawson)

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