Real estate market Rifts in the real estate landscape

After a long boom phase, prices are now drifting far apart. Depending on the location and property, prices are stagnating or even falling.

byJürg Zulliger 15 May 2019

Almost every second homeowner overestimates the value of their home, often by 20 to 40 percent, according to a real estate agent survey in Germany. In Switzerland, too, homeowners are often way off the mark when it comes to the price they think they could get for selling their home. Jürg Grünenfelder, a real estate agent in the canton of Glarus, confirms this: “Every day, you’ll find a lot of crazy asking prices on online platforms,” he says. Both private individuals and agents have inflated price fantasies. In order to acquire lucrative sales mandates, some agents are apparently prepared to place homes on the market at prices that are far too optimistic.

Fantasy prices are counterproductive

“Private homeowners always try to start with the maximum price,” says Jürg Grünenfelder, adding that, depending on the property and location, the likelihood for success is not greater than your chances of getting all six numbers right in the lottery. Putting a fantasy price on a property can even turn out badly. “It often happens that the revenue from a sale are lower than if the homeowner had set the price realistically based on the current situation,” the agent says. If the asking price doesn’t generate interest in the market, the owner remains stuck with their property. And for prospective buyers, the impression of “too expensive” remains in their heads. If a house is on the market too long and takes successive price cuts, the impact is counterproductive. It puts off potential buyers.

Location is the key metric for price

The difficulties of making a correct market appraisal come from the fact that prices can vary widely, depending on the location. It is well known, of course, that in Safiental or in Jura, both land and properties are worth much less than they are in the cities of Zurich or Geneva. The current market prices for land that has been zoned for construction illustrate the huge range of prices for real estate: in the canton of Zurich, one square meter of land for construction costs 2,000 francs or more, while in Jura, eastern Switzerland or in the canton of Solothurn, land can be purchased at a fraction of this cost. In Thal (SO), for example, the price per square meter is 200 francs.

The real estate agent Jürg Grünenfelder provides another example of the sharp discrepancies in prices: “Prices for an identical condominium with the same number of square meters and the same year of construction can differ by 40 to 50 percent within one region.” The reasons for this are the very different conditions in certain municipalities and regions with regard to population growth, centralization and proximity to shops and transportation, but also as regards market supply and construction activity.

Older properties and luxury homes are losing value

Many individuals also fail to take seriously enough the deterioration of buildings over the years. Condominiums built in the 1960s, for example, need some work to be sold, especially if the inside and the outside of the house are not in the best condition. The plan to discontinue the imputed rental value of a property, which is likely to take effect in 2022 at the earliest, would increase the renovation backlog. After all, if the cost of maintaining the property is no longer tax deductible, this lowers the incentive for investing in the property.

Nowadays, luxury properties in the upper price segment and in top locations that are supposed to be crisis-resistant are generally under pressure. In many cases, prices are stagnating or falling. The properties have to be on the market for a long time before a buyer can be found. Matthias Holzhey from our Chief Investment Office has noticed that the prices for micro locations within the same municipalities are converging: “Prices for good micro locations have been steadily falling in recent years. In 2012, the price per square meter in good and very good micro locations was about 20 percent higher than in bad and average locations. This difference has now been cut in half.” A micro location depends on the slope and position of the land, sun exposure, view and proximity to shops and transportation, among other things.

Rising values in the cheaper segment

In contrast to the above, cheaper apartments or those in bad locations are currently experiencing above-average price increases. Several factors are at play here. First, potential buyers have been shifting toward cheaper – and often smaller – properties for cost reasons. Second, properties in less desirable locations are catching up after years of fetching below-average prices. But is this trend sustainable? Experts point out that prices could fall again in many places and for certain properties. According to Matthias Holzhey: “Excessive prices in the low-price segment pose a risk for disproportionately high losses in value if demand weakens.”

Something new in real estate: falling prices

In a handful of regions, home prices have been falling (see tables), which is a relatively recent trend. According to the survey of transaction prices by Wüest Partner in 2017 and 2018, this is impacting the following locations: Locarno and Lugano, Leuk (VS), the Jura area and Thal (SO). Price trends are also heading lower in Linthgebiet (SG) and in Sion (VS). There has also been a modest decline in the trend in Laufental (BL) and Oberaargau. Prices for single-family houses were also impacted by the downward trend in Leuk, Val-de-Travers (NE) and Martigny (VS).

In many cases, this price weakness corresponds to below-average population growth. But there are also exceptions: resident population growth in Martigny has been very dynamic, but transaction prices for single-family homes have been falling. Some locations have been hit by falling prices because the significant increase in rental vacancies has impacted the home segment. In Ticino, many locations are facing problems because there is also a relatively large number of homes for sale.

What determines the quality of a location?

Robert Weinert, an economist at Wüest Partner, offers some insight: “Basically, it is always a combination of various macro factors that determines the development of a location.” The most important factors are: the level of taxation, public and private transportation links, construction activity (and thus local market supply) and the absolute price level for private homes. Residential areas that are comparatively cheaper are attracting target groups for whom living in the city centers has become too expensive.


Home buyers have to assume that even over the medium term the trend will vary regionally. There are many indications that investor interest and demand for housing in the coming years will be concentrated above all on the agglomerations. This can also be seen in the long-term population forecasts of the Federal Statistical Office, which go to the year 2045: the agglomerations of Zurich and Geneva will continue to see strong growth going forward, while in the cantons of Uri and Appenzell Innerrhoden only a very slight increase in the population is expected.

For single-family homes, most experts assume that the gap between the periphery and agglomerations will not increase – the dream of owning a home in the countryside remains intact. The gap between home ownership and renting is likely to grow larger.

City or countryside: where to live?

Going forward, property and rental prices in city centers will continue to move higher at an above-average pace. If you take a closer look and include other major cost factors, such as wealth and income taxes as well as health insurance premiums, you will see a slightly different “real estate landscape.” For example, if you move to Altdorf in the canton of Uri, you will have more money in your wallet at the end of every month than in almost any other larger location in Switzerland. In a direct comparison with Geneva, which is known as an expensive location, costs in the capital city of Uri are about one third lower. The middle of the pack is made up of cantons such as Baselland, St. Gallen, Lucerne or Graubünden. Overall costs are also low in peripheral regions in, for instance, Obwalden, Glarus and Appenzell Innerrhoden. Schwyz also features low costs, which is probably due to the low tax rate in the canton.

But as a rule, the savings potential for households with average purchasing power is limited. This is because in municipalities with low tax rates the real estate prices are often high. In other words, a good portion of the tax advantage tends to be offset by higher purchase prices or housing costs. Only with very high incomes can the overall balance be significantly improved by relocating to a tax-efficient location. For a comprehensive comparison of locations, you should also consider the jobs that are available. If you move to Appenzell Innerrhoden or Uri, then you can usually expect to have a longer commute.