Switzerland’s housing market stabilizes
Lalaine C. Delmendo | May 18, 2021
Switzerland’s housing market is now stabilizing, after three years of minimal house prices falls due to government-imposed market-cooling measures.
The nationwide average price of privately owned apartments rose by 0.4% (1.1% inflation-adjusted) during 2020, following y-o-y declines of 1.2% in 2019, 1.7% in 2018 and 1% in 2017, according to the Swiss National Bank (SNB). During the latest quarter, apartment prices rose by 1.1% q-o-q (1.3% inflation-adjusted).
- In Lake Geneva, the average transaction price of privately-owned apartments rose by 2.1% (2.9% inflation-adjusted) in 2020, after falling by 0.1% in 2019 and 1.4% in 2018.
- Zurich had a slight price decline of 0.7% (unchanged when adjusted for inflation), after falling by 0.5% in 2019 and 0.8% in 2018.
- Southern Switzerland had a price increase of 0.3% (1.1% inflation-adjusted), following y-o-y declines of 2.3% in 2019 and 1.6% in 2018.
- Central Switzerland had a price decline of 1.1% (-0.3% inflation-adjusted) in 2020, after falling by 0.1% in 2019 and 3.2% in 2018.
- Eastern Switzerland saw a slight price increase of 0.4% (1.1% inflation-adjusted), following a 1% rise in 2019 and a 0.9% drop in 2018.
- Northwestern Switzerland recorded the biggest price increase in privately-owned apartments, at 2.4% (3.2% inflation-adjusted), after a y-o-y rise of 1.3% in 2019 and a fall of 1.5% in 2018.
- Western Switzerland had a price fall of 0.4% (up 0.4% inflation-adjusted) last year, following a decline of 1.2% in 2019 and a slightly increase of 0.1% in 2018.
- Berne’s apartment prices rose by 1.3% (2.1% inflation-adjusted) in 2020 from a year earlier, following y-o-y rises of 0.1% in 2019 and 1.8% in 2018.
Improving housing market conditions were due to higher demand buoyed by good financing terms and very low interest rates, combined with low housing supply, according to Wüest and Partner.
“[T]he good financing terms and relatively high pay increases at the beginning of the year, coupled with higher demand (driven by the coronavirus pandemic) for good residential quality and private living space have stimulated interest in owner-occupied housing,” said Wüest and Partner. “On the other hand, the supply of housing on the market is sparse.”
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)
Yet low rental yields continue to discourage foreign homebuyers. In Q4 2020, prime rental yields range from just 1.4% to 1.9%, down from 1.7% to 2.3% two years ago, according to Wüest and Partner. This is supported by GlobalProperty 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%.
Switzerland´s economy declined 2.9% in 2020 from a year earlier, in contrast to expansions of 0.9% in 2019 and 2.8% in 2018, as the COVID-19 pandemic battered the services sector, according to the State Secretariat for Economic Affairs (SECO). The impact was more severe than the 2.1% fall in economic output during the financial crisis – in fact, the worst downturn in 45 years. SECO expects the economy to grow by 3% this year and by another 3.3% in 2022, as output recovers from the pandemic.
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 2020, according to Wüest and Partner, for owner-occupied apartments:
- In Geneva, the average transaction price was CHF 18,140 (€16,385) per sq. m.
- In Zurich, the average price was CHF 16,060 (€14,506) per sq. m.
- In Lausanne, the average price was CHF 12,700 (€11,471) per sq. m.
- In Basel, the average price was CHF 11,270 (€10,180) per sq. m.
- In Berne, the average price was CHF 9,660 (€8,725) per sq. m.
For single-family homes:
- In Zurich, the average transaction price was CHF 3.01 million (€2.72 million) in Q4 2020
- In Geneva, the average price was CHF 2.83 million (€2.56 million)
- In Lausanne, the average price was CHF 1.95 million (€1.76 million)
- In Basel, the average price was CHF 2.2 million (€ 1.99 million)
- In Berne, the transaction price was CHF 1.91 million (€1.72 million)
Mortgage interest rates are amazingly low
In its March 2021 meeting, the SNB held its policy rate unchanged at -0.75% - the lowest in the world. As a result, mortgage rates remained amazingly low. In January 2021:
- Variable: 2.65%, almost unchanged from 2.63% a year ago
- Fixed with up to 1 year maturity: 0.99%, slightly down from 1.01% a year earlier
- Fixed with up to 3 years maturity: 1.02%, almost unchanged from 1.04% a year ago
- Fixed with up to 5 years maturity: 1.07%, slightly down from 1.08% in the previous year
- Fixed with up to 7 years maturity: 1.14%, almost unchanged from 1.13% a year ago
- Fixed to 10 years: 1.25%, slightly up from 1.23% a year ago
Despite low interest rates, 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 a result of SNB’s attempt to contain Swiss franc appreciation. However in March 2020, the requirement was removed to mitigate the economic impact of the COVID-19 pandemic.
“The vulnerability of the Swiss mortgage and real estate markets to shocks remains at an elevated level,” said the SNB. “The Swiss authorities will regularly reassess the need for a reactivation of the sectoral CCyB or an activation of the Basel III CCyB and will communicate to the public consequently,” SNB added.
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 163% of GDP last year, far higher than the 123% of GDP in 2010, 97% of GDP in 2000 and just 60% of GDP in 1990.
In January 2021, the total amount of mortgage loans outstanding rose by 3.34% to almost CHF 1.09 trillion (€ 981.4 million) from the same period last year, according to the SNB. Over the same period:
- Domestic: mortgage loans rose by 3.3% to CHF 1.08 trillion (€971.8 billion)
- Foreign: mortgage loans increased 9.8% to CHF 10.6 billion (€9.6 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), 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.
Zurich has the highest number of permanent foreign residents at 19.4% of the total, followed by the canton of Vaud (12.4%), Geneva (8.4%), and the canton of Argovia (8.1%).Europeans accounted for almost 86% of the permanent foreign resident population in Switzerland.
In 2020, asylum applications dropped almost a quarter to 11,041, according to SEM. In addition, the net migration rate fell by about 5.5% in 2020 from a year earlier.
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 more or less steady
In 2020, the median asking rent for apartments fell by 2.1% from a year earlier, at CHF 190 (€172) per sq. m. per year, following declines of 0.9% in 2019 and 2.1% in 2018, according to Wüest and Partner. Rents are projected to continue to fall by 1.2% this year, amidst the economic uncertainty brought by the pandemic.
- In Geneva, the median asking rent was CHF 370 (€334) per sq. m. per year in Q4 2020, unchanged from a year earlier. Geneva’s average rent in prime areas was CHF 630 (€569) per sq. m. per year.
- In Zurich, the median asking rent was CHF 340 (€307) per sq. m. per year, up 3% from a year earlier. Zurich’s average rent in prime areas was CHF 705 (€637) per sq. m. per year.
- In Lausanne, the median asking rent rose by 3.7% y-o-y to CHF 280 (€253) per sq. m. every year. Lausanne’s average rent in prime areas was CHF 440 (€397) per sq. m.
- In Basel, the median asking rent was up 4.3% y-o-y to CHF 240 (€217) per sq. m. per year. Basel’s average rent in prime areas was CHF 365 (€330) per sq. m.
- In Berne, the median asking rent was unchanged at CHF 240 (€217) per sq. m. per year. Berne’s average rent in prime areas was CHF 390 (€352) 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 Valais.
The vacancy rate for rental apartments was 2.7% in 2020, up 2.6% in 2019, 2.5% 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 the past three years (2018-20), population growth fell to between 0.7% and 0.8% for the first time in more than a decade, amidst low net inward migration of foreign residents during the past four years, 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 2020 even showed worse rental yields, with prime Zurich yields at just around 1.4%.
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 depreciates, amidst SNB’s massive forex purchases
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. Against the US dollar, the Swiss franc has been almost steady over the same period.
However since last year, the SNB has accelerated its foreign currency purchases to counter coronavirus-driven inflows. The central bank’s move is expected given the country’s heavy reliance on exports.
Pandemic-induced economic contraction
Switzerland´s economy declined 2.9% in 2020, in contrast to expansions of 0.9% in 2019 and 2.8% in 2018, as the COVID-19 pandemic battered the service sector, according to the State Secretariat for Economic Affairs (SECO). It was the worst downturn in 45 years. Yet Switzerland’s economic contraction is far less severe than its neighbors: -8.8% in Italy, -8.2% in France, -7.5% in Austria, and -5.3% in Germany.
Controlling the spread of the virus triggered a sharp economic downturn in Switzerland during the first half of 2020. In response, the Swiss government introduced an economic stimulus package worth CHF 65 billion (€ 59 billion) - the biggest in the country’s history.
SECO expects the economy to grow by 3% this year and by another 3.3% in 2022, as output recovers from the pandemic.
Unemployment has risen only moderately, thanks to government support programs. Switzerland’s registered unemployment rate stood at 3.6% in February 2021, up from 2.5% a year earlier, according to State Secretariat for Economic Affairs (SECO). The jobless rate is projected at 3.3% this year, before easing to 3% in 2022.
In February 2021, core inflation stood at -0.3%, down from 0.2% in the previous year and 0.4% 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.wuestpartner.com/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
- World Economic Outlook Database, October 2020 (International Monetary Fund): https://www.imf.org/en/Publications/WEO/weo-database/2020/October/select-subjects?c=146,
- 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
- Asylum statistics February 2021 (State Secretariat for Migration): https://www.sem.admin.ch/sem/de/home/publiservice/statistik/asylstatistik/archiv/2021/02.html
- Poor rental yields in Geneva and Zurich (Global Property Guide): https://www.globalpropertyguide.com/Europe/Switzerland/Rental-Yields
- Basel III countercyclical capital buffer (Swiss National Bank): https://www.snb.ch/en/mmr/reference/ccb_20210205_basel_III_countercyclical_capital_buffer/source/ccb_20210205_basel_III_countercyclical_capital_buffer.en.pdf
- Tenants / owners (Federal Statistics 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
- 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
- After SNB decision, will Swiss franc resume its decline? (Market Pulse): https://www.marketpulse.com/20210325/after-snb-decision-will-swiss-francs-decline-continue/
- Switzerland: 23% Decrease in Number of Asylum Applications in 2020 Due to COVID-19 (SchengenVisaInfo News): https://www.schengenvisainfo.com/news/switzerland-23-decrease-in-number-of-asylum-applications-in-2020-due-to-covid-19/