For the first time since we’ve been tracking savings and investments in Austria, real estate has become the most attractive product in this category. Our quarterly mood barometer shows that the appeal of property has overtaken established building loan and savings accounts, with 37% saying owning a flat or house is the most attractive investment option, and real estate following second. So what’s happening, and what does it mean for the Austria’s financial service industry?
Savings in context: Austrians value financial security, not risk
In other European countries and the US, the tendency to turn to property as an investment over savings is well-established. By comparison, in Austria building loans and savings accounts have been preferred – up until now. Our research reveals that financial security is one of the core elements of quality of life for Austrians, ranked just below health. Austrians tend to choose no or low risk over return on investment, explaining why to date these mechanisms have been favored, despite historically low interest rates.
The changing landscape
When we look at the attractiveness of different savings mechanisms including pensions, we see:
The current situation means a lack of trusted alternatives for Austrians. Familiar products are no longer attractive, and attractive products are not familiar enough, and in the case of real estate, not affordable. Rather than switch to riskier products, Austrians have reduced the amount they are saving, forcing the net savings rate to historically low figures.
Financial service providers must react if they are to remain an attractive partner for saving and investment in the long term. One option is to focus on developing a portfolio customer’s entire product life cycle, with flexibility to opt in and out. In addition, banks must focus on learning more about their current and potential clients’ needs, especially in the early life stages when trust is built. If you can understand their need and plans for the future, it is possible to build a strategy to meet them.
The rise of saving at home
One response to the market uncertainty is that an increasing number of Austrians are considering saving at home as an attractive alternative to bank products. This is a trend we’ve been aware of since the start of the global financial crisis in 2008, and its appeal has been rising steadily – to 14% today. We believe banks can counter this by educating consumers to understand the risks and consequences of keeping their money under the mattress at home. Although interest rates are low, there are advantages to saving with banks and clearly more can be done to communicate that message. Once again, a product portfolio with flexibility to appeal throughout customers’ entire life cycle could be an attractive option.
Opportunities to identify and maximize a latent market
Although real estate might be the most attractive savings mechanism, it is certainly not the most realized. Two thirds of Austrians have a savings account, whereas property is simply out of the reach of the majority. But not all investments require such large sums. We believe there is an opportunity to educate consumers about the potential higher return on shares and investment funds. Providers who can identify those consumers looking for a higher – albeit riskier – savings or investment portfolio, and educate them, have the opportunity to maximize a new audience. Although this is a small market now – at present every fifth Austrian owns stocks and shares - there is the potential for growth with the right products and messaging.