Switzerland’s housing market remains steady

Switzerland’s housing market remains more or less steady, despite rapidly rising interest rates, rising construction costs, and a slowing economy.

The nationwide price index for privately owned apartments rose by a modest 3.9% in Q1 2023 from a year earlier, following y-o-y increases of 3.63% in Q4 2022, 2.73% in Q3, 1.88% in Q2 and 1.4% in Q1, according to figures from the Swiss National Bank (SNB). However, when adjusted for inflation, prices were up by a minuscule 0.68% over the same period.

Switzerland’s house price annual change

Quarter-on-quarter, apartment prices increased by 0.75% in Q1 2023 but actually declined by 0.25% in real terms.

By region:

  • In Lake Geneva, the average transaction price of privately-owned apartments rose by 1.6% in Q1 2023 from a year earlier but declined slightly by 0.1% from the previous quarter.
  • Zurich saw a y-o-y price increase in privately-owned apartments of 4.4% in Q1 2023. Quarter-on-quarter, prices increased by a meager 0.2%.
  • Central Switzerland recorded the biggest y-o-y price increase in privately-owned apartments, at 6.5%. On a quarterly basis, apartment prices were up by 2.4%.
  • Southern Switzerland had a price increase of 6.3% in Q1 2023 from a year earlier, and 1.4% from the previous quarter.
  • Eastern Switzerland’s apartment prices were more or less steady, recording an increase of 1.1% y-o-y and a slight decline of 0.1% q-o-q.
  • In Northwestern Switzerland, prices for privately-owned apartments increased by 1.6% in Q1 2023 from a year earlier and by 0.3% from the previous quarter.
  • Western Switzerland had a price growth of 1.8% when compared to a year ago, and 0.5% from the previous quarter.
  • Berne’s apartment prices rose by 1.8% y-o-y in Q1 2023 but declined slightly by 0.1% q-o-q.

 Switzerland’s housing market saw strong house price increases from 2000 to 2016:

  • Owner-occupied dwelling prices rose by 80.5% (70.2% in real terms)
  • Single-family home prices rose by 58% (49% in real terms)
  • Rental apartments in old and new buildings rose by 49.2% (40.7% in real terms)

 Residential property growth slowed dramatically from 2017 to the first half of 2020. Surprisingly, the Swiss housing market remained healthy during the Covid-19 pandemic, with residential property prices rising robustly from the second half of 2020 to Q1 2023.

Switzerland Real Estate Price Indices graph

The Swiss housing market is expected to remain stable during the remainder of the year, with marginal price increases for both apartments and single-family homes. However, low rental yields and strict foreign homeownership rules in the country are discouraging some foreign investors.

In Geneva, rental apartments yield from just 1.9% to 2.3%, according to Global Property Guide research conducted in November 2022. Likewise in Zurich, gross rental yields for apartments stood at an average of 2.8%, down from about 3.3% three years ago. Wüest and Partner’s Q4 2022 figures are even lower, with prime rental yields averaging just 1.25%, down from 1.4% to 1.9% two years ago and from 1.7% to 2.3% three years ago.

Foreign property purchases are also severely restricted. The Swiss have for a long time restricted the sale of property to foreigners, with an annual quota of permits set by the Federal Government given to non-resident foreigners seeking to acquire property in Switzerland.

Switzerland’s economy expanded by 3.5% in 2021 and by another 2% in 2022, following a 2.9% contraction in 2020, thanks to the Swiss government’s introduction of an economic stimulus package worth CHF 65 billion (€ 66.95 billion) - the biggest in the country’s history. However, economic growth is slowing sharply again. In Q1 2023, the economy expanded by a meager 0.6% from a year earlier, amidst the ongoing Russian war in Ukraine, supply chain bottlenecks, and heightened inflationary pressure worldwide. As a result, the State Secretariat for Economic Affairs (SECO) projects the Swiss economy to grow significantly below average at 1.1% this year and 1.5% in 2024.

Local house price variations

Geneva has Switzerland’s most expensive owner-occupied apartments while Zurich has the priciest single-family homes.

During 2022:

  • In Geneva, the average transaction price of owner-occupied apartments was CHF 19,460 (€20,044) per sq. m., up by 3% from a year earlier, based on figures from Wüest and Partner.
  • In Zurich, the average price was CHF 19,210 (€19,786) per sq. m., sharply up by 12.5% from the previous year.
  • In Lausanne, the average price was CHF 14,820 (€15,264) per sq. m., up by 9.1% from a year earlier.
  • In Basel, the average price was CHF 12,400 (€12,772) per sq. m., up 54.6% from a year ago.
  • In Berne, the average price stood at CHF 10,680 (€11,000) per sq. m., up by a modest 4.4% from a year earlier.

For single-family homes:

  • In Zurich, the average transaction price for single-family homes surged by a huge 22% y-o-y to CHF 4.08 million (€4.2 million) during 2022.
  • In Geneva, the average price was CHF 3.31 million (€3.41 million), up by 7.3% from a year ago.
  • In Lausanne, the average transaction price stood at CHF 2.65 million (€2.73 million), sharply up by 18.1% from a year earlier.
  • In Basel, the average price was CHF 2.67 million (€2.75 million), up by 8.6% from a year earlier.
  • In Berne, the transaction price was CHF 2.21 million (€2.28 million), up by 6.6% from the previous year.

Switzerland Price Indices of Single-Family Houses graph

Mortgage rates are now rising rapidly, following key interest rates hikes

In its June 2023 meeting, the SNB raised its policy rate by 25 basis points to 1.75% and signaled the possibility of further rate increases in the future to rein in inflationary pressures. The central bank’s latest move was the fifth straight rate hike since the beginning of its tightening cycle last year. Borrowing costs are now at their highest level in more than two decades. 

“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” said the SNB. “To provide appropriate monetary conditions, the SNB also remains willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency,” the central bank added.

As a result, mortgage rates are also rising rapidly. In May 2023:

  • Variable: 2.84%, up from 2.63% a year ago and 2.64% two years earlier
  • Fixed with up to 1 year maturity: 2.9%, sharply up from 1.23% a year earlier and 1.01% two years ago
  • Fixed with up to 3 years maturity: 2.89%, sharply up from 1.7% in the previous year and 1.04% two years ago
  • Fixed with up to 5 years maturity: 2.92%, far higher than the 1.99% in May 2022 and 1.09% in May 2021
  • Fixed with up to 7 years maturity: 2.97%, up from 2.26% a year ago and 1.19% two years earlier
  • Fixed to 10 years: 3.06%, sharply up from 2.5% in the previous year and 1.37% two years ago

Switzerland Mortgage Rates graph

Despite the sharp increase in mortgage interest rates, they remain very low by international standards, as well as from a long-term perspective.

“From a long-term perspective, mortgage rates remain relatively low, despite the increase in recent months. So far, demand for mortgage loans does not appear to have been affected by the higher interest rates,” said the SNB in its Q1 2023 Quarterly Bulletin. “However, there has been increased demand for mortgage loans with relatively short maturities.”

Yet housing loan volumes have increased only modestly in recent years, because of the Federal Council’s imposition of a countercyclical capital buffer (CCyB) for residential real estate (click to download PDF) in February 2013, as part of SNB’s attempt to contain the appreciation of the Swiss franc. However, in March 2020, the requirement was removed to mitigate the economic impact of the Covid-19 pandemic. Then on January 26, 2022, the capital buffer targeted at mortgage loan financing residential real estate was reactivated, where it remained since.

“The Swiss sectoral CCyB targeted at mortgage loans financing residential property located in Switzerland remains at 2.5% as decided and communicated by the Federal Council in January 2022,” said the SNB. “The Swiss authorities will continue to monitor the developments in the mortgage and real estate markets closely and examine whether further measures are necessary to contain the risks for financial stability.”

Swiss lenders are generally conservative. Borrowers must produce down payments of 5% to 20% of the loan value. In fact, about 90% of all bank mortgages have loan-to-value (LTV) ratios of less than two-thirds of the property value.

The mortgage market remains highly leveraged

The size of Switzerland’s mortgage market was around 152% of GDP last year, far higher than the 119% of GDP in 2010, 94% of GDP in 2000, and just 60% of GDP in 1990.

In April 2023, the total amount of mortgage loans outstanding rose by 3.1% to more than CHF 1.18 trillion (€1.22 trillion) from the same period last year, according to the SNB. Over the same period:

  • Domestic: mortgage loans rose by 3.2% y-o-y to CHF 1.17 trillion (€ 1.2 billion)
  • Foreign: mortgage loans increased 2.4% y-o-y to CHF 14.8 billion (€15.2 billion)

Mortgage loans grew by an annual average of 3.7% in the past decade.

Switzerland Mortgage Loans graph

Immigrants boost the housing market

Switzerland has one of the world’s largest numbers of permanent immigrants per capita, at almost 26% of the population, according to the State Secretariat for Migration (SEM). This significantly affects house price movements.

In 2022, the total number of permanent foreign residents rose by 2.4% from a year earlier, to 2,241,854 people – the highest ever recorded. As of May 2023, permanent foreign residents in Switzerland stood at 2,272,764 people.

Zurich has the highest number of permanent foreign residents at 19.1% of the total, followed by the canton of Vaud (12.2%), Geneva (8.3%), the canton of Argovia (8.2%), and Berne (7.7%). Europeans accounted for almost 85% of the permanent foreign resident population in Switzerland last year, at 1,897,814 people.

Switzerland Permanent Foreign Resident Population graph

However, the growth in net migration is gradually slowing. In 2022, the net migration rate stood at about 4.9%, down from 5.2% in 2021, 5.5% in 2020, and 5.8% in 2019. It was the lowest level recorded in the past two decades.

Foreign residents tend to remain ‘foreign’ because Switzerland has one of the world’s strictest citizenship requirements. It requires 12 years of “permanent, legal, notated” residency, full integration into Swiss culture and community, and mastery of one of the official languages.

Switzerland Net Migration Rate graph

Foreign property purchases are severely restricted

The Swiss have long restricted the sale of property to non-resident foreigners. Cantonal authorization is needed before gaining the title. Each canton has slightly different rules and the rules even vary from commune to commune within the canton. In addition, the Federal government has set an annual quota of permits for non-resident foreigners seeking to acquire property in Switzerland.

Generally speaking, foreigners have the largest choice of properties in French-speaking cantons. The most liberal canton is Vaud, which includes mountain resorts such as Villars, where foreigners can buy virtually any property and resell it immediately.

Residential rents are rising again

Residential rents are now rising gradually again, buoyed by a supply shortage and increasing population. In Q1 2023, the rent index for rental housing units in Switzerland rose slightly by 1.3% from a year earlier, its fourth consecutive quarter of registering y-o-y increases after falling continuously from Q1 2016 to Q1 2022, based on figures from the SNB.

This was supported by Wüest and Partner’s report, which showed that the median asking rent for apartments increased 1.6% y-o-y to CHF 190 (€196) per sq. m. during 2022, following annual declines of 2.6% in 2021, 2.1% in 2020, 0.9% in 2019 and 2.1% in 2018.

During 2022:

  • In Zurich, the median asking rent was CHF 350 (€360) per sq. m., up by 2.9% from the previous year. Zurich’s average rent in prime areas was CHF 820 (€845) per sq. m.
  • In Geneva, the median asking rent was CHF 370 (€381) per sq. m., down by 2.6% from a year earlier. Geneva’s average rent in prime areas was CHF 650 (€669) per sq. m.
  • In Lausanne, the median asking rent was steady at CHF 280 (€288) per sq. m. Lausanne’s average rent in prime areas was CHF 420 (€433) per sq. m.
  • In Basel, the median asking rent was also unchanged at CHF 240 (€247) per sq. m. but the average rent in prime areas increased to CHF 400 (€412) per sq. m.
  • In Berne, the median asking rent increased to 4.2% to CHF 250 (€258) per sq. m. as compared to a year earlier. Berne’s average rent in prime areas was CHF 430 (€443) per sq. m.

The highest rents are in the cantons of Zug, Zurich, and Schwyz, according to the Federal Statistics Office. The cheapest cantons include Jura, Neuchâtel, and Valais.

“The shortage of rental housing in Switzerland is intensifying. Last year saw a further drop in supply that was fuelled, among other things, by the decline in development activity,” said Wüest and Partner in its Q1 2023 Switzerland Property Market report.

“At the same time, Switzerland is witnessing a surge in its population, which rose by 150,000 from Q4 2021 to the end of Q3 2022, with permanent residents accounting for 73,000 of this figure and non-permanent residents for 77,000,” Wüest and Partner added.

Asking rents for residential units are projected to rise further by 2% this year.

Rents had been falling in recent years, mainly due to a decline in demand. From 2018 to 2021, population growth fell to between 0.7% and 0.8% for the first time in more than a decade, amidst low net inward migration, compounded by the coronavirus-induced lockdowns and travel restrictions. The rental market only showed some signs of improvement in Q2 2022, as travel restrictions were eased and economic activity gradually returns to its pre-pandemic levels.

The vacancy rate for rental apartments fell to 2.1% in 2022, from 2.4% in 2021, and 2.7% in 2020, based on figures from Wüest and Partner.

Switzerland has a huge rental market, with about 2.4 million households (61%) living in rented or cooperative dwellings.

Switzerland Rent Index for Rental Housing Units graph

Rental yields are low

Rental yields in Switzerland’s major cities are quite low. In Geneva, home to several international organizations, i.e. Red Cross, WTO, WHO, and ILO, rental apartments yield from 1.9% to 2.3%, according to Global Property Guide research. Smaller apartments have generally higher rental yields than their larger counterparts.

Zurich, Switzerland’s biggest city and the financial capital, Global Property Guide research suggests that the gross rental yields for apartments stood at an average of 2.8%, down from about 3.3% three years ago. Wüest and Partner’s recent report in Q4 2022 even showed worse rental yields, with prime rental yields averaging just 1.25%, down from 1.4% to 1.9% two years ago and from 1.7% to 2.3% three years ago.

In other locations:

  • Canton of Vaud apartments yield between 2.16% and 3.90%, with an average of 2.92%.
  • Canton of Ticino apartments offer returns of about 1.80% to 3.31%, with an average of 2.53%.
  • Canton of Valais apartments yield stays between 2.82% and 4.83%, with an average of 3.67%.
  • Canton of Bern apartments earns a yield between 2.57% and 4.63% with an average of 3.67%.
  • Canton of Aargau apartments offer rental yields of around 2.62% to 3.40% with an average of 2.88%.
  • Canton of Fribourg apartments yield between 2.87% and 3.92% with an average of 3.26%.

The buy-to-let market remains off-limits to foreigners, except for subsidized housing. A foreigner may only be granted authorization to acquire a rental unit if he constructs subsidized housing, i.e. builds accommodation with a rent that is low compared with similar premises in the same locality, or acquires newly built housing of the same type when there is a local housing shortage, an exception which applies only in the cantons of Fribourg, Geneva, Grisons, Jura, Neuchâtel, Ticino, Vaud, and Valais.

Pro-tenant laws

Switzerland has one of the lowest owner-occupancy rates in Europe. One reason is extremely pro-tenant laws. Rent increases must be justified by the landlord’s cost increases. Tenants are also protected against eviction.

Owner-occupancy is also discouraged by taxation; property is treated as an asset subject both to wealth tax and to income tax for imputed rental income. Income tax rates in Switzerland can easily exceed 50%, among the highest in the world. Capital gains are also taxed at the cantonal level, with rates differing by the duration of ownership.

However, there has been a trend toward more home ownership, which increased from 31% of the total in 1990 to about 36.4% recently, according to figures from the Federal Statistics Office. Changes in pension laws helped - funds can now be withdrawn for house purchases from all pension accounts, both mandatory and voluntary. However, Switzerland is still sometimes dubbed ‘a nation of tenants’.

The Swiss franc continues to appreciate, amidst safe-haven inflows

In June 2023, the Swiss franc gained another 5% against the euro from a year earlier to reach a monthly average exchange rate of CHF 0.976 = EUR 1, as safe-haven inflows driven by the global economic slowdown and concerns over the Russia-Ukraine war pushed the domestic currency to its second highest level ever recorded against the euro. Against the US dollar, the Swiss franc also appreciated by about 7.7% over the same period.

“The Swiss franc continues to be highly valued,” said the SNB last year. “The Swiss franc is currently sought after as a refuge currency, along with the U.S. dollar and the yen,” it added.

The strong Swiss franc, coupled with lower oil and gas prices, is expected to have a dampening effect over the short term, said the SNB in its June 2023 Monetary Policy Assessment.

The Swiss franc gained 39% against the euro and almost 30% against the US dollar on January 15, 2015, when the SNB removed its CHF1.20 = EUR 1 exchange rate cap. The SNB decided to abandon the cap, in place since 2011, in the face of monetary easing by the European Central Bank (ECB), believing that increased demand for safe haven currencies such as the Swiss franc would make it impossible to defend the cap.

From January 2018 to March 2020 (pre-pandemic), the Swiss franc appreciated against the euro by almost 11%, as investors have sought safe-haven currencies amidst geopolitical uncertainty caused by Brexit and the US-China trade tension. The gains offset the 8% depreciation of the franc against the euro in 2017.

However from Q1 2020 to Q1 2021 – during the onset of the pandemic – the Swiss franc depreciated against the euro by 4.3% but appreciated against the US dollar by 3.1%. During the period, the SNB has accelerated its foreign currency purchases to counter coronavirus-driven inflows, given the country’s heavy reliance on exports.

The Swiss franc appreciated again against the euro and the US dollar by 12.1% and 3.3%, respectively, from Q1 2021 to Q4 2022.

Switzerland Monthly Average Exchange Rates graph

Swiss economy slowing

In Q1 2023, Switzerland’s economy expanded by a meager 0.6% from a year earlier, following y-o-y growth of 0.7% in Q4 2022, 0.9% in Q3, 2.4% in Q2, and 4.1% in Q1, amidst the ongoing Russian war in Ukraine, supply chain bottlenecks, and heightened inflationary pressure worldwide. As a result, the State Secretariat for Economic Affairs (SECO) projects the Swiss economy to grow significantly below average at 1.1% this year and 1.5% in 2024.

“The expert group on business cycles continues to expect significantly below-average growth for the Swiss economy, with a rate of 1.1% in 2023, followed by 1.5% in 2024 (GDP adjusted for sporting events),” said SECO. “The Swiss economy started the year vigorously, and energy prices continue to fall. However, inflationary pressures remain high internationally and there are pronounced economic risks.”

Switzerland’s economy expanded by 3.5% in 2021 and by another 2% in 2022, following a 2.9% contraction in 2020, thanks to the Swiss government’s introduction of an economic stimulus package worth CHF 65 billion (€ 66.95 billion) - the biggest in the country’s history.

Before the Covid-19 pandemic from 2010 to 2019, the country had been growing by an annual average of 2%.

Switzerland GDP Growth and Unemployment graph

Switzerland’s labor market remains in good shape. Unemployment stood at a non-seasonally adjusted rate of 1.9% in June 2023, unchanged from the previous month, according to SECO. From 2010 to 2022, the jobless rate averaged below 3%. Even during the pandemic, unemployment only marginally increased to 3.2% in 2020 and 3% in 2021, before falling down to 2.2% in 2022.

The jobless rate is projected to average 2% for the full year of 2023 but will increase again to 2.3% in 2024, according to SECO projections.

In May 2023, the nationwide inflation eased to 2.2%, down from 2.6% in the previous month and 2.9% a year earlier, according to the Swiss National Bank. Before rising to 2.8% in 2022, the country’s average annual inflation in the past decade was almost zero.

Switzerland Core Inflation graph

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