Switzerland’s house price falls continue
Lalaine C. Delmendo | May 20, 2019
Success at last! After about 15 years of uninterrupted house price rises, the Swiss government’s efforts to cool the country’s overheated property market have finally succeeded. House prices have been falling since the second half of 2017.
The nationwide average price of privately owned apartments fell by 1.12% (-1% inflation-adjusted) during the year to Q1 2020, following y-o-y declines of 1.22% in Q4 2019, 2% in Q3, 1.89% in Q2, and 1.44% in Q1, according to the Swiss National Bank (SNB). During the latest quarter, apartment prices fell by 0.56% q-o-q (-0.43% inflation-adjusted).
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)
The property market’s slowdown is due to the Swiss National Bank’s stricter lending criteria, which are designed to lower housing debt (currently 90% of all household debt). The rise of the Swiss frank against the euro since 2015 has also made Swiss real estate more expensive for foreign investors, reducing demand.
Low rental yields are also discouraging foreign homebuyers. In Q1 2020, prime rental yields range from just 1.5% to 2.1%, down from 1.7% to 2.3% a year earlier, according to Wüest and Partner. This is supported by Global Property Guide’s own research suggesting that rental apartments in Geneva yield about 2.8% to 3.3%; while in Zurich, gross rental yields stand at an average of 3.27%.
Nationwide apartment prices fell by 1.9% in 2018 and by another 1.6% in 2019.
- Lake Geneva had a house price decline of 0.07% (-0.64% inflation-adjusted) in 2019, after falling by 1.44% in 2018.
- Zurich had a house price decline of 0.46% (-1.02% inflation-adjusted), after falling by 0.84% in 2018.
- Southern Switzerland recorded the biggest price decline in privately owned apartments, at 2.28% (-2.83% inflation-adjusted) in 2019.
- Central Switzerland had a house price decline of 0.11% (-0.67% inflation-adjusted) in 2019, after falling by 3.17% in 2018.
- Eastern Switzerland saw a slight house price increase of 0.95% (0.38% inflation-adjusted), following a 0.93% drop in 2018.
- Northwestern Switzerland had a house price rise of 1.3% (0.73% inflation-adjusted), after falling by 1.45% in 2018.
- Western Switzerland had an annual house price fall of 1.19% (-1.74% inflation-adjusted) last year.
- Berne’s house prices were almost unchanged in 2019 from a year earlier (-0.51% when adjusted for inflation).
Switzerland’s economy grew a minuscule 0.9% in 2019 from a year earlier, sharply down from an expansion of 2.8% in 2018 and theweakest performance in a decade, according to the State Secretariat for Economic Affairs (SECO). The economy is expected to contract by a huge 6.7% this year, as fallout from the COVID-19 outbreak has been worse than initially feared.
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.
Local house price variations
Geneva has Switzerland’s most expensive owner-occupied apartments while Zurich has the priciest single-family homes.
In Q1 2020, according to Wüest and Partner, for owner-occupied apartments:
- In Geneva, the median asking price was CHF 13,890 (€ 13,216) per sq. m.
- In Zurich, the median asking price was CHF 12,770 (€ 12,150) per sq. m.
- In Lausanne, the median asking price was CHF 10,320 (€ 9,819) per sq. m.
- In Basel, the median asking price was CHF 9,290 (€ 8,839) per sq. m.
- In Berne, the median asking price was CHF 7,630 (€ 7,260) per sq. m.
For single-family homes:
- In Zurich, the median asking price was CHF 2.09 million (€1.99 million)
- In Geneva, the median asking price was CHF 1.94 million (€1.85 million)
- In Lausanne, the median asking price was CHF 1.49 million (€ 1.41 million)
- In Basel, the median asking price was CHF 1.43 million (€ 1.36 million)
- In Berne, the median asking price was CHF 1.28 million (€1.22 million)
Mortgage interest rates are amazingly low
In March 2020, average interest rates for new mortgage loans were:
- Variable: 2.63%, unchanged from a year ago
- Fixed with up to 1 year maturity: 1.03%, slightly down from 1.07% a year ago
- Fixed with up to 3 years maturity: 1.07%, unchanged from a year ago
- Fixed with up to 5 years maturity: 1.13%, slightly up from 1.11% in the previous year
- Fixed with up to 7 years maturity: 1.22%, slightly up from 1.2% a year ago
- Fixed to 10 years: 1.35%, down from 1.41% a year ago
Despite low interest rates, especially since December 2014 as a result of SNB’s attempt to contain Swiss franc appreciation, housing loan volumes have increased only modestly because of the Federal Council’s imposition of a countercyclical capital buffer (CCB) for residential real estate in February 2013.
Swiss lenders are generally conservative. Borrowers must produce down payments of 5% to 20% of 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.
Mortgage market remains highly leveraged
The size of Switzerland’s mortgage market was around 148% of GDP last year, far higher than the about 97% of GDP in 2000 and just 60% of GDP in 1990.
In February 2020, the total amount of mortgage loans outstanding rose by 3% to CHF 1.05 trillion (€ 1 billion) from the same period last year, based on figures from the SNB. Over the same period:
- Domestic: mortgage loans rose by 3.1% to CHF 1.04 trillion (€991.3 billion)
- Foreign: mortgage loans fell slightly by 0.2% to CHF 9.6 billion (€9.1 billion)
Foreigners are settling in Switzerland in large numbers
Switzerland has one of world’s largest numbers of permanent immigrants per capita, at almost 25% of the population in 2019, according to the State Secretariat for Migration (SEM). This is significantly affecting house price movements. In 2019, net immigration was about 55,000, at par from a year earlier, but down from an annual average of 72,000 from 2009 to 2016.
Europeans accounted for almost 86% of the permanent foreign resident population last year. Zurich has the highest number of permanent foreign residents at 19.4% of the total in 2019, followed by the canton of Vaud (12.4%), Geneva (8.4%), and the canton of Argovia (8.1%).
However immigration is expected to temporarily decline sharply this year, amidst the lockdowns and travel restrictions associated with the coronavirus pandemic.
“With borders closed and less opportunities for finding work, immigration is likely to decrease sharply,” said Wüest and Partner. As a result, “additional demand for rented accommodation looks set to slacken off this year.”
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 to Swiss culture and community, and mastery of one of the official languages.
Foreign property purchases severely restricted
The Swiss have long restricted the sale of property to foreigners. Cantonal authorization is needed before gaining 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 immediately.
Residential rents to fall this year
In Q1 2020, the median asking rent for apartments was unchanged from a year earlier, at CHF 190 (€181) per sq. m. per year, according to Wüest and Partner. Rents are projected to fall this year, as demand declines sharply due to the COVID-19 outbreak.
- In Geneva, the median asking rent was CHF 380 (€362) per sq. m. per year in Q1 2020. Geneva’s average rent in prime areas was CHF 630 (€599) per sq. m. per year.
- In Zurich, the median asking rent was CHF 330 (€314) per sq. m. per year. Zurich’s average rent in prime areas was CHF 690 (€657) per sq. m. per year.
- In Lausanne, the median asking rent was CHF 270 (€257) per sq. m. every year. Lausanne’s average rent in prime areas was CHF 425 (€404) per sq. m.
- In Basel, the median asking rent was CHF 240 (€228) per sq. m. per year. Basel’s average rent in prime areas was CHF 370 (€352) per sq. m.
- In Berne, the median asking rent was CHF 240 (€228) per sq. m. per year. Berne’s average rent in prime areas was CHF 385 (€366) per sq. m. per year.
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 Glarus.
The vacancy rate for rental apartments increased to 2.7% in 2019, from 2.6% in 2018, 2.3% in 2017, 2% in 2016 and 1.8% in 2015, based on figures from Wüest and Partner.
While the number of rental apartments on offer has increased, demand has weakened in recent years, partly due to slower population growth. In both 2018 and 2019, population growth fell to 1% for the first time in more than a decade, compounded by the low net inward migration of foreign residents during the past four years.
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 2.8% to 3.3%, according to Global Property Guide research. Smaller apartments have 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 3.27%, almost unchanged from two years ago. Wüest and Partner’s recent report in Q1 2020 even showed worse rental yields, with prime Zurich yields at just around 1.5%.
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 which 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.
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 cantonal level, with rates differing by duration of ownership.
However, there has been a trend to more home ownership, which increased from 31% of the total in 1990, to about 38% 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’.
Swiss franc appreciates, as demand for safe-haven currencies rise
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 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.
Over the past two years, the Swiss franc has appreciated against the euro by 12.7%, 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. Against the US dollar, the Swiss franc has been almost steady for the past two years.
Economy to contract sharply; unemployment rising
Switzerland’s economy grew by a minuscule 0.9% in 2019 from a year earlier, the weakest performance for a decade,according to the State Secretariat for Economic Affairs (SECO).
The restrictions to control the spread of the virus, such as the closure of companies in the retail, hospitality and leisure sectors, are expected to trigger a very sharp economic downturn during the first half of 2020. The central bank has forecast that the Swiss economy will contract by 6.7% this year - the worst downturn since 1975, in the aftermath of the oil price shock.
“This is one of the worst economic crises since World War 2,” said SECO economist Ronald Indergand. “The speed and the force of the downturn is simply unprecedented. Within two months the economic situation has been wrecked.”
In response, the Swiss government introduced an economic stimulus package worth CHF 65 billion (€ 62 billion) to help companies hit by the pandemic. It is the biggest in the country’s history.
Switzerland’s registered unemployment rate stood at 2.9% in March 2020, up from 2.5% a year earlier, according to State Secretariat for Economic Affairs (SECO). The jobless rate is projected to rise to 3.9% this year, which would be the highest since 1997.
In March 2020, core inflation stood at -0.1%, down from 0.5% a year earlier, according to the Swiss National Bank. The central bank expects inflation to slow to around -0.3% this year, amidst falling oil prices, significantly weaker growth prospects, and stronger Swiss franc.
- Real estate price indices – total for Switzerland – by quarter (Swiss National Bank): https://data.snb.ch/en/topics/uvo#!/cube/plimoinchq?fromDate=1990-Q1&toDate=2017-Q3&dimSel=D0(EW,EH,MW),D1(AP)
- Property Market Switzerland 2020 | 2 (Wüest and Partner): https://www.wuestpartner.com/news?language=en
- Poor rental yields in Geneva and Zurich (Global Property Guide): https://www.globalpropertyguide.com/Europe/Switzerland/Rental-Yields
- World Economic Outlook Database, April 2020 (International MonetaryFund): https://www.imf.org/external/pubs/ft/weo/2020/01/weodata/index.aspx
- Interest rates and exchange rates (Swiss National Bank): https://data.snb.ch/en/publishingSet/A
- Basel III countercyclical capital buffer (Swiss National Bank): https://www.snb.ch/en/mmr/reference/ccb_20190207_basel_III_countercyclical_capital_buffer/source/ccb_20190207_basel_III_countercyclical_capital_buffer.en.pdf
- Economic data (Swiss National Bank): https://data.snb.ch/en/publishingSet/B
- Monetary policy assessment of 19 March 2020 (Swiss National Bank): https://www.snb.ch/en/mmr/reference/pre_20200319_2/source/pre_20200319_2.en.pdf
- Economic forecasts (State Secretariat for Economic Affairs): https://www.seco.admin.ch/seco/en/home/wirtschaftslage---wirtschaftspolitik/Wirtschaftslage/konjunkturprognosen.html
- Swiss forecasts 7% decline in economy in 2020 due to Covid-19 (BusinessDay): https://www.businesslive.co.za/bd/world/europe/2020-04-23-swiss-forecasts-7-decline-in-economy-in-2020-due-to-covid-19/
- Gross domestic product in the fourth quarter of 2019: economy confirms slowdown (State Secretariat for Economic Affairs): https://www.seco.admin.ch/seco/en/home/seco/nsb-news.msg-id-78314.html
- Tenants/owners (Federal Statistical Office): https://www.bfs.admin.ch/bfs/en/home/statistics/construction-housing/dwellings/housing-conditions/tenants-owners.html
- Rented dwellings (Federal Statistical Office): https://www.bfs.admin.ch/bfs/en/home/statistics/construction-housing/dwellings/rented-dwellings.html
- Switzerland´s population continued to increase and age in 2019 (Federal Statistical Office): https://www.bfs.admin.ch/bfs/en/home/statistics/population.assetdetail.12247184.html
- Foreigners and asylum statistics 2019 (State Secretariat for Migration): https://www.sem.admin.ch/dam/data/sem/publiservice/statistik/bestellung/auslaender-asylstatistik-2019-d.pdf
- Immigration to Switzerland Rises Ahead of Vote on EU Free-Movement Deal (US News): https://www.usnews.com/news/world/articles/2020-01-30/immigration-to-switzerland-rises-ahead-of-vote-on-eu-free-movement-deal