Switzerland’s housing market gradually improving
Lalaine C. Delmendo | May 05, 2022
Switzerland’s housing market is now stabilizing, after three years of slight house prices falls due to government-imposed market-cooling measures.
The nationwide average price of privately owned apartments rose by 1.8% (1.4% inflation-adjusted) during 2021, following declines of 0.4% in 2020, 1.6% in 2019 and 1.9% in 2018, according to the Swiss National Bank (SNB). In fact, 2021 was the Swiss market’s best showing since 2014.
- In Lake Geneva, the average transaction price of privately-owned apartments rose by 3.3% (2.9% inflation-adjusted) in 2021, after rising by 2.1% in 2020.
- Zurich recorded the biggest price increase in privately-owned apartments, at 5.3% (4.8% inflation-adjusted), following a slight price decline of 0.7% in 2020.
- Southern Switzerland had a price increase of 3.1% (2.6% inflation-adjusted), up from the previous year’s miniscule growth of 0.3%.
- Central Switzerland had a slight price increase of 0.3% (-0.2% inflation-adjusted), following a decline of 1.1% in 2020.
- Eastern Switzerland saw a price increase of 2.9% (2.5% inflation-adjusted), up from the previous year’s meager growth of 0.4%.
- Northwestern Switzerland had a price increase of 1.9% (1.4% inflation-adjusted), following growth of 2.4% in 2020.
- Western Switzerland had a price growth of 1.9% (1.5% inflation-adjusted), in contrast to a price fall of 0.4% in 2020.
- Berne’s apartment prices rose by 4.3% y-o-y (3.8% inflation-adjusted) in 2021, an improvement from 2020’s 1.3% growth.
Improving housing market conditions were due to higher demand buoyed by good financing terms and very low interest rates, combined with low housing supply.
“Higher construction costs and greater optimism among the various players in the Swiss real estate market have pushed up the investment volumes for the new-build approvals granted,” said Wüest and Partner. “A slight increase in new-build activity is expected for this year.”
Prices are expected to continue increasing this year. “Prices are set to increase again in 2022 as the market will still be dominated by a shortage of supply. An average rise of 2.5% is expected for owner-occupied apartments across all the sub-segments, and price growth of 3.0% is expected for single-family houses,” according to Wüest and Partner.
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)
Rental yields are low. In Q4 2021, prime rental yields range from just 1.2% to 1.6%, down from 1.4% to 1.9% a year ago and from 1.7% to 2.3% two years ago, according to Wüest and Partner.
Switzerland´s economy expanded by 3.5% y-o-y in 2021, in contrast to a 2.9% contraction in 2020 but below initial projections amidst the resurgence of Covid infections in late-2021, with restrictions being tightened across the region. The State Secretariat for Economic Affairs (SECO) forecasts Switzerland’s economic growth this year at 2.8%. Supply chain bottlenecks, rising inflation, and the conflict in Ukraine are posing major risks to economic recovery.
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 Q4 2021, according to Wüest and Partner:
- In Geneva, the average transaction price of owner-occupied apartments was CHF 18,900 (€18,540) per sq. m., up 4.2% from a year earlier.
- In Zurich, the average price was CHF 17,070 (€16,745) per sq. m., up 6.3% from the previous year.
- In Lausanne, the average price was CHF 13,580 (€13,322) per sq. m., up 6.9% from a year earlier.
- In Basel, the average price was CHF 11,860 (€11634) per sq. m., up 5.2% from a year ago.
- In Berne, the average price was CHF 10,230 (€10,035) per sq. m., up 5.9% from a year earlier.
For single-family homes:
- In Zurich, the average transaction price was CHF 3.34 million (€3.28 million) in Q4 2021, up 11% from a year earlier.
- In Geneva, the average price was CHF 3.08 million (€3.02 million), up 8.9% from a year ago.
- In Lausanne, the average price was CHF 2.25 million (€2.2 million), up 15.2% from a year earlier.
- In Basel, the average price was CHF 2.46 million (€2.41 million), up 11.6% from a year earlier.
- In Berne, the transaction price was CHF 2.07 million (€2.03 million), up 8.5% from the previous year.
Despite negative key rates, mortgage rates are now gradually rising
In its March 2022 meeting, the SNB held its policy rate unchanged at -0.75% - the lowest in the world. The central bank also reiterated its willingness to intervene in the foreign exchange markets, as necessary, to restrain rises in the value of the Swiss franc.
“The Swiss franc remains highly valued. Russia’s invasion of Ukraine has led to a strong increase in uncertainty worldwide,” said the Swiss National Bank. “Against this backdrop, the SNB with its monetary policy is ensuring price stability and supporting the Swiss economy.”
Despite this, mortgage rates are gradually rising. In February 2022:
- Variable: 2.63%, almost unchanged from 2.65% a year ago
- Fixed with up to 1 year maturity: 1.05%, slightly up from 1% a year earlier
- Fixed with up to 3 years maturity: 1.17%, up from 1.05% a year ago
- Fixed with up to 5 years maturity: 1.36%, up from 1.11% in the previous year
- Fixed with up to 7 years maturity: 1.55%, up from 1.21% a year ago
- Fixed to 10 years: 1.72%, up from 1.39% a year ago
Despite the gradual increase in mortgage rates, they remain very low by international standards.
Yet housing loan volumes have increased only modestly in recent years, because of the Federal Council’s imposition of a countercyclical capital buffer (CCB) for residential real estate 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. It was only on January 26, 2022 that the capital buffer targeted at mortgage loans financing residential real estate was reactivated. Banks are given until September 30, 2022 to meet the increased capital requirements.
“The reasons that led to the deactivation of the sectoral CCyB in March 2020 no longer exist today,” said the Swiss National Bank. “Meanwhile, the vulnerabilities in the Swiss mortgage and residential real estate markets have continued to increase,” noted SNB.
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 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 January 2022, the total amount of mortgage loans outstanding rose by 3.4% to more than CHF 1.12 trillion (€ 1.1 trillion) from the same period last year, according to the SNB. Over the same period:
- Domestic: mortgage loans rose by 3.3% to CHF 1.11 trillion (€ 1.09 billion)
- Foreign: mortgage loans increased 6.4% to CHF 11.3 billion (€11.1 billion)
Immigrants boost the housing market
Switzerland has one of world’s largest numbers of permanent immigrants per capita, at almost 25% of the population, according to the State Secretariat for Migration (SEM). This significantly affects house price movements.
In 2021, the total number of permanent foreign residents rose by 1.8% from a year earlier, to 2,190,293 people – the highest ever recorded.
Zurich has the highest number of permanent foreign residents at 19.2% of the total, followed by the canton of Vaud (12.3%), Geneva (8.4%), and the canton of Argovia (8.2%). Europeans accounted for almost 85% of the permanent foreign resident population in Switzerland.
In 2021, the net migration rate stood at about 5.2%, slightly down from 5.5% in the previous 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 non-resident 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 continue to fall
In 2021, the median asking rent for apartments fell by 2.6% from a year earlier to CHF 190 (€188) per sq. m., following declines of 2.1% in 2020, 0.9% in 2019 and 2.1% in 2018, according to Wüest and Partner.
These reductions come despite a fall in rental offers: “Liquidity has declined on the rental apartment market overall,” said Wüest and Partner. “In the fourth quarter of 2021 there were 139,200 properties on the market – 10.4% fewer than the average for the five previous years.”
But given the current tightness of supply, asking rents are expected to fall only slightly this year, by 0.8%.
During Q4 2021:
- In Geneva, the median asking rent was CHF 380 (€375) per sq. m., up 2.7% from a year earlier. Geneva’s average rent in prime areas was CHF 650 (€642) per sq. m.
- In Zurich, the median asking rent was CHF 340 (€336) per sq. m., unchanged from the previous year. Zurich’s average rent in prime areas was CHF 700 (€691) per sq. m.
- In Lausanne, the median asking rent was steady at CHF 280 (€277) per sq. m. Lausanne’s average rent in prime areas was CHF 450 (€445) per sq. m.
- In Basel, the median asking rent was unchanged at CHF 240 (€237) per sq. m. Basel’s average rent in prime areas was CHF 360 (€356) per sq. m.
- In Berne, the median asking rent was unchanged at CHF 240 (€237) per sq. m. Berne’s average rent in prime areas was CHF 395 (€390) 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 vacancy rate for rental apartments was 2.4% in 2021, down from 2.7% in 2020, 2.6% in 2019, and 2.5% in 2018, based on figures from Wüest and Partner.
The continued decline in rents was mainly due to weakening demand. In the past four years (2018-21), 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.
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 Q4 2021 even showed worse rental yields, with prime rental yields ranging from just 1.2% to 1.6%, down from 1.4% to 1.9% a year ago and from 1.7% to 2.3% two years ago.
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 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’.
Swiss franc appreciating, amidst safe-haven inflows
In March 2022, the Swiss franc gained 8% against the euro from a year earlier to reach a monthly average exchange rate of CHF 1.0244 = EUR 1, as safe-haven inflows driven by concerns over Ukraine pushed the domestic currency to its highest level ever recorded against the euro. Against the US dollar, the Swiss franc has been almost steady over the same period.
“The Swiss franc is currently sought after as a refuge currency, along with the U.S. dollar and the yen,” said the SNB.
“The Swiss franc continues to be highly valued,” it added. “The SNB remains prepared to intervene in the foreign exchange market if necessary.”
The strong Swiss franc, coupled with rising energy prices, is expected to have a negative effect on trade and exports.
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.
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 March 2020 to March 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.
Modest economic growth
Switzerland´s economy expanded by 3.5% y-o-y in 2021, in contrast to a 2.9% contraction in 2020 but below initial projections amidst the resurgence of infections in late-2021 and restrictions were tightened across the region. To boost economic activity, the Swiss government introduced an economic stimulus package worth CHF 65 billion (€ 64.1 billion) - the biggest in the country’s history.
The State Secretariat for Economic Affairs (SECO) forecasts Switzerland’s economic growth this year at a modest 2.8%, as supply chain bottlenecks, rising inflation, and the conflict in Ukraine pose major risks to economic recovery.
Yet it remains above the annual average of 2% from 2010 to 2019.
Unemployment inched down to a non-seasonally adjusted 2.4% in March 2022 – the lowest level since November 2019.
The jobless rate is projected to fall to 2.1% this year and to 2% in 2023, according to projections from the State Secretariat for Economic Affairs (SECO).
In February 2022, core inflation stood at 1.3%, sharply up from -0.3% in February 2021 and 0.2% two years ago, according to the Swiss National Bank. The country’s average annual inflation in the past decade was almost zero.
- 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=2020-Q4&dimSel=D0(EW,EH,MH),D1(TP)
- Real estate price indices – by market area – Year (Swiss National Bank): https://data.snb.ch/en/topics/uvo/cube/plimoinreg?fromDate=2011&toDate=2020&dimSel=D0(EW,EH,MW,BF,GF),D1(GS,RZ,RO,RI,RN,RB0,RS,RG0,RW,RB1,RG1,US),D2(A)
- Wüest Indices Latest developments in the real estate market (Wüest and Partner): https://www.wuest.io/online_services_classic/angebotspreisindex/index_e.phtml
- Published interest rates for new transactions (Swiss National Bank): https://data.snb.ch/en/topics/ziredev/cube/zikrepro
- Mortgage loans and other domestic and foreign loans (Swiss National Bank): https://data.snb.ch/en/topics/banken/cube/bakredinausbm
- Switzerland at a Glance (International Monetary Fund): https://www.imf.org/en/Countries/CHE
- Consumer prices – SNB and SFSO core inflation rates (Swiss National Bank): https://data.snb.ch/en/topics/uvo/cube/plkoprinfla
- Foreign exchange rates – Month (Swiss National Bank): https://data.snb.ch/en/topics/ziredev/cube/devkum
- Poor rental yields in Geneva and Zurich (Global Property Guide): https://www.globalpropertyguide.com/Europe/Switzerland/Rental-Yields
- Tenants / owners (Federal Statistics Office): https://www.bfs.admin.ch/bfs/en/home/statistics/construction-housing/dwellings/housing-conditions/tenants-owners.html
- Economic forecasts (State Secretariat for Economic Affairs): https://www.seco.admin.ch/seco/en/home/wirtschaftslage---wirtschaftspolitik/Wirtschaftslage/konjunkturprognosen.html
- Unemployment, underemployment and vacancies (Federal Statistics Office): https://www.bfs.admin.ch/bfs/en/home/statistics/work-income/unemployment-underemployment-vacancies.html
- Property Market Switzerland 2021 | 4 (Wüest and Partner): https://www.wuestpartner.com/uploads/sites/8/2021/11/publication_2111_EN_Immobilienmarkt_2021_04.pdf
- Property Market Switzerland 2022 | 1 (Wüest and Partner): https://www.wuestpartner.com/uploads/sites/6/2022/02/2022_1_EN_Immobilienmarkt.pdf
- Switzerland: SNB maintains ultra-loose monetary policy in March (Focus Economics): https://www.focus-economics.com/countries/switzerland/news/monetary-policy/snb-maintains-ultra-loose-monetary-policy-in-march-0#:~:text=Our%20panelists%20forecast%20the%20Swiss,and%202023%20at%20minus%200.49%25.
- Monetary policy assessment of 24 March 2022: Swiss National Bank retains expansionary monetary policy (Swiss National Bank): https://www.snb.ch/en/mmr/reference/pre_20220324/source/pre_20220324.en.pdf
- Stance of the Basel III countercyclical capital buffer in Switzerland (Swiss National Bank): https://www.snb.ch/en/mmr/reference/ccb_20220210_basel_III_countercyclical_capital_buffer/source/ccb_20220210_basel_III_countercyclical_capital_buffer.en.pdf
- Rented dwellings (Federal Statistical Office): https://www.bfs.admin.ch/bfs/en/home/statistics/construction-housing/dwellings/rented-dwellings.html
- Swiss National Bank renews pledge to stem franc´s rise in rare comment (Reuters): https://www.reuters.com/markets/europe/swiss-national-bank-says-ready-intervene-stem-francs-rise-2022-03-07/
- Economic forecast: Ukraine conflict holding back recovery (State Secretariat for Economic Affairs): https://www.admin.ch/gov/fr/accueil/documentation/communiques.msg-id-87575.html
- 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