Real estate market Forecast: stagnating property prices

The Swiss real estate market has lost more of its zeal in the first quarter. We're expecting stagnating prices for this year.

by Maciej Skoczek 22 Jun 2018

In a year-on-year comparison, we can see a correction of 2 percent for condominiums, whereas prices for single-family homes rose by 1.6 percent. The price change rates are considerably lower than the year before.

Regional price corrections

A correction for condominium prices can be noted in almost all Swiss regions. During the last year, prices decreased the most in the southern and eastern regions. Only Zurich and Western Switzerland saw notable price increases of up to 2 percent. However, single-family homes remained more stable than condominiums. A price increase of almost 6 percent was measured in Eastern Switzerland, and single-family homes around Lake Geneva increased in price by 4 to 5 percent, as did properties in the north-eastern part of the country. Single-family homes in Zurich and Western Switzerland, however, saw a slight decrease in value.

Dampened price development

The continuing attractive financing conditions and the economic upswing supported the demand for properties. Owner-occupied properties seem to remain attractive in comparison to rental apartments because 10 to 15 percent of the maintenance costs can be reduced when you buy instead of rent a comparable property. For a property worth 1 million Swiss francs, this amounts to 4,000 francs a year. For many potential buyers, affordability remains tight and restricts the potential for rising prices. Slightly increasing mortgage interest rates and intensifying competition cause rental properties to be vacant and therefore dampen the price development.

Construction booms yet the population hardly grows

Building activities on the real estate market show no signs of weakness. During the last four quarters, a total of 59,000 building applications were submitted and 54,000 building permits granted. The first quarter of 2018 saw more construction permits granted than in the first quarters of the past three years. In the current year, new apartments will be built for up to 110,000 people across Switzerland.

In 2017, the Swiss population grew by almost 63,000 people (0.7 percent), which corresponds to the lowest growth in the last ten years. These numbers were taken from the provisional data of the Federal Statistical Office (FSO). The cantons of Neuchâtel and Ticino were most affected by the setback – their population even shrank a little. The strongest growth was measured in the cantons of Zug, Geneva and Thurgau.

Due to declining immigration and rising emigration, the net immigration only amounted to 51,000 people – a decrease of 30 percent, or 20,000 people, compared to 2016. Neuchâtel and Ticino even saw negative migration numbers.

Renting is becoming more attractive

According to the State Secretariat for Migration, the data for the first quarter of 2018 shows a stabilization of the migration development at the current lower level. This supports our forecast of a rising vacancy ratio to 1.7 percent by June 2018 (2017: 1.5 percent) and to 1.8 percent by June 2019. Vacancies still affect the rental apartment market the most. But an overlap of price pressure on the property market cannot be avoided as falling rents for new builds are making rental apartments more attractive than condominiums.