What You Need to Know About The Swiss Real Estate Market 2017/2018
The Swiss Real Estate Market is an interesting one.
This mountainous, landlocked country may be small, but it has major international significance as a real estate investment location. It has emerged as one of the major centers of industry and commerce and its prosperous, stable cities are often selected as headquarters for significant organizations. It is regularly judged as having one of the world’s highest standards of living.
Investing in Swiss real estate is an attractive prospect. 85% of buyers are Swiss, but foreigners from Britain, France, Germany, Canada, Russia and Belgium also invest in property here. Switzerland has 26 individual cantons (similar to states) and each one has its own rules on homeownership.
After around 15 years of rising house prices, the attempts by the Swiss government to cool down the market have succeeded. House prices nationwide started to decrease in 2016 and in 2017 the market slowed down further.
Many complex factors affect the Swiss Real Estate Market, including demand, vacancies, caps on mortgage lending, immigration more. The property market is constantly changing. There are several in-depth studies done each year which reflect the trends and challenges of the market. Let’s take a deeper look into these insights and what they have to tell us about property in Switzerland.
Swiss Real Estate Trends in 2017/2018
The world is always changing and new styles of work and play shift the way we live. Our changing culture and attitudes, along with a wide range of other factors, affect the Swiss Real Estate Market. Understanding these trends is important when making smart real estate investment decisions.
Let’s take a look at some of the trends that are shaping real estate in Switzerland in 2017/2018.
A High Demand for Apartments
According to these stats from Crowdhouse, more than 60% of the population in Switzerland live in apartments. This means that the demand for apartments is one of the highest in Europe.
However, according to this report by Credit Suisse, the trend is towards smaller and less expensive apartments in the urban regions, which will pay off from the perspective of the investor. Small apartments are selling like hotcakes, according to the report. Apartments with 2.5 rooms sell very well, regardless of which floor they are on.
Currently a mega-apartment project is underway in Geneva. Work begun in March 2018 on a project to complete 1,000 apartments on an 11 hectare site in Vernier, not far from the Geneva airport. The complex will be like a “town within a town” and include hotels, clinics and commercial space, as well as housing 2,500 people. It is expected to be completed between 2021 and 2023.
The Rise of High-Rise Buildings
Due to the current style of urban living in Switzerland, residential high rise buildings are experiencing a renaissance. They seem to be the ideal product for enjoying the current lifestyle trends in Switzerland. Here are some of the reasons why high rise buildings currently have appeal:
- Many core cities have become more attractive to live in again, due to relocation of industrial activities, traffic calming measures, improved urban infrastructure and better public transportation.
- Household sizes are decreasing due to high divorce rates, an aging population and a trend towards single living.
- Dynamic immigration increases the need for residential architecture in the urban centers.
- Thanks to their ability to provide maximum living space in a small area, high-rise buildings are also well suited to the sharing economy — offering guest rooms and offices that can be rented on a flexible basis.
- Also, high-rise buildings appeal on an environmental basis, as more people can live in a space with a lower energy footprint per inhabitant.
New vs. Old Buildings
Another one of the noteworthy trends to consider in the Swiss property market is that due to the high number of new construction projects many tenants are changing from old to new buildings.
When you adjust vacancy for new housing, the vacancy rate is only 0.22%. This means that when it comes to investing in property in Switzerland, a new property is always a good bet.
Rental Properties Owned by Individuals
Those renting a home in Switzerland will be more likely to be renting it from an individual than a large real estate company.
According to statistics from the FSO, in 2017 49% of residential rental properties were owned by individuals. Also, large rental homes were more likely to be owned by individuals than small ones. (Large refers to homes of more than 5 rooms).
Digitization
One of the biggest trends shaping the market is digitization, as reported by the Real Estate Investment Trend Barometer. This will take many forms, but one of the most significant is BIM, or building information modeling. This is technology that uses a three-dimensional model of building components and processes in order to improve construction work.
Another trend is smart real estate technologies, which promise greater efficiency and lower costs. For example, digital bidding and renting tools that use blockchain technology. These tools have the potential to change the way real estate transactions are made.
Co-Working Spaces
New workplace models are changing the way we do business and therefore affecting trends in corporate real estate. Co-working spaces are one of the hottest trends at the moment. They are workspaces that can be rented by the week, day or hour by businesses, teams, start-ups or individual freelancers. They offer a lot of flexibility, as well as opportunities for collaboration.
Connectivity is extremely important in these working environments, as internet access is essential for most modern workers. When it comes to the office space market, being connected with fiber optic cables will be a huge advantage. A trend towards these types of co-working spaces could result in a deduction in demand for traditional office spaces.
Real Estate in Switzerland — Quick Facts and Stats
- The population of Switzerland is 8 million. (Source)
- The GDP per capita is $79,052.34, which is one of the highest in the world. (Source)
- The vacancy rate for the Swiss housing market is at 1.47%. (Source)
- Switzerland has one of the world’s lowest home ownership rates. Only 37.4% of the population own the home they live in. (Source)
- Every property in Switzerland is recorded in the Swiss Land Registry, a publicly accessible database of information. (Check out our detailed guide to how the Swiss Land Registry System works)
House Prices and Real Estate Risk in Switzerland
Home ownership in Switzerland is becoming a more realistic option for many investors as the price of apartments and houses continue to fall. According to the Swiss Real Estate Offer Index, the cost of residential apartments fell by 4% over the last year.
According to the Swiss National Bank, the nationwide average price of rental apartments has also fallen during 2017. This drop comes after 14 years of price growth.
The Index showed that a Swiss apartment that cost 7,350 francs per square meter in July was down to 6,900 francs per square meter in December. Data from a property price report published by the Zurich based consulting and research firm Fahrländer Partner FPRE revealed that the prices of mid-range apartments fell the most (-9.4%). High end apartments had the next highest drop at -6.3%. Smaller, less expensive apartments had the lowest drop in price, at only 0.9%.
Single family homes also dropped in price — 5.7% annually. According to the Fahrländer Partner FPRE report, the region with the largest year on year decline was Lake Geneva, with a drop of 8.5%. This was followed by the Alps (-7.5%) and southern Ticino (-7.4%).
This drop in prices could be attributed to low interest rates, as well as an abundance of vacant properties. It can also be explained by the stricter lending criteria put in place by the Swiss National Bank — which was intended to lower housing debt.
Also, when the central bank of Switzerland decided to abandon the cap against the Euro in 2015, this made Swiss real estate more expensive for foreign investors. As a result, demand was reduced and house prices began to decline.
Of course, the price of real estate in Switzerland varies sharply from region to region. For example, property in Geneva and Lake Zurich will be at the high end of the scale, while real estate in the rural areas will be much cheaper.
Swiss real estate risk has also fallen two quarters in a row, according to the UBS Swiss Real Estate Bubble Index. The way this index works is that prices are considered balanced when the index reaches zero. A score of between zero and 1 is a price boom, between 1 and 2 is risky and above 2 is a price bubble.
At the moment the index is in the “risk zone” at 1.32 index points. The increase in home prices has outpaced the increase in income and rents.
What will happen to property prices in 2018? According to Credit Suisse, they will begin to rise again significantly. Economists for Credit Suisse are predicting that price increases will be a result of residential property shortage and low vacancies.
As this article states, prices are rising again even around Lake Geneva where a recent price correction had the greatest impact. (Although prices are still declining in cantons such as Glarus, Valais, Schwyz and areas of Graubünden and Ticino).
Limited Supply = High Demand
Every five years, the Federal Statistical Office in Switzerland prepares calculations to estimate population growth. However, in recent times they have drastically underestimated and have had to recalculate.
For example, the last forecast was in 2015 and the FSO predicted that the population would not grow to 9 million people until the year 2060. However, according to more recent data this number could be reached as early as 2023. The current population of Switzerland is nearly 8.5 million and there is a predicted population growth of 9% between 2015 and 2024.
However, while the population of Switzerland is growing, the availability of building land reserves is decreasing. According to statistics from the FSO in 2012, only around 12–18% of building land reserves remain in Switzerland (and this number is very likely to have decreased in recent years.) After all, 70% of the land area in Switzerland is mountainous and very difficult to build upon!
As the population continues to grow, this limited supply of land reserves will be in very high demand.
Reasons Why Property in Switzerland is a Smart Investment
Property in Switzerland is a smart investment at the moment. Although the cost of property in Switzerland is high, demand for rental properties is also strong — especially those located near major centers such as Basel, Zurich and Geneva.
According to the EY Trendbarometer of the Real Estate Investment Market, 97% of survey participants see Switzerland as an attractive investment location. The survey found that due to the multi-year low-interest phase, real estate will continue to generate sufficient return benefits over fixed-income investment.
According to data from UK-based relocation service MoveHub, Switzerland is among the five best countries for first-time buyers. Their study used property price data from the Global Property Guide, comparing it with average salary data from the Hay’s Group Global Salary Forecast.
Let’s take a look into some of the reasons why property in Switzerland is a smart investment in 2018.
- Switzerland remains one of the most sought after locations in the world, providing a high quality of life, excellent education, a favourable tax environment and a high level of security.
- Although it has a very slow and steady real estate market (thanks to strict regulation), Swiss property has performed very well as a long term investment. (Of course, properties in large business hubs or popular travel areas offer the best return on investment.)
- Popular ski resorts such as Vaud and Valais are excellent rental zones and they also experience fast property appreciation.
- Switzerland has a very low risk of political instability and is very internationally well-connected.
- The existence of a large expat community in Switzerland makes buying real estate easier for foreigners. Many large companies, institutions and universities rely on a foreign workforce, so many cantons are accommodating.
What Investors Should Know When Buying Property in Switzerland
There are a few important things that investors should know before purchasing a property in Switzerland.
- You can buy property in Switzerland as a foreigner, but if you want to stay for longer than 90 days you will need to apply for a residence permit. Many investors will apply for a B permit that allows them to live and work in Switzerland. This permit will allow you to purchase any property in Switzerland.
- When you become a property owner in Switzerland, you’ll need to pay income tax on the equivalent rental value of the property. However, your maintenance expenses are partially deductible and your mortgage interest rates are fully deductible.
- Before purchasing a home in Switzerland, you’ll need to meet the financial requirements, as the Swiss banks will have strict affordability rules for mortgage applicants. (Here’s a handy mortgage affordability calculator to see how well you qualify.)
- Most of the cantons in Switzerland will require homeowners to take out building insurance. This will protect you in the event of flood, fire and other natural disasters, but it is an extra cost you will need to consider.
- We wrote a complete guide for who may own what kind of properties in Switzerland, you can read it here (LINK soon)
Swiss Real Estate: A Smart Investment in 2018
With trends such as digitization, small apartments and co-working spaces, the real estate market in Switzerland is always changing.
2018 offers a great opportunity and attractive conditions for investment, thanks to stable prices in favored locations and a large amount of capital. Some of the most attractive forms of investment include high rise apartments, co-working spaces and student flats (and other affordable housing).
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