Market in Depth

Slowdown inevitable for house prices in Switzerland

Lalaine C. Delmendo | June 23, 2019

After about 15 years of uninterrupted house price rises, the Swiss government's efforts to cool Switzerland's overheated property market have finally succeeded.

The nationwide average price of privately owned apartments fell by 1.44% (-2.05% inflation-adjusted) during the year to Q1 2019, its seventh consecutive quarter of y-o-y falls, according to the Swiss National Bank (SNB). During the latest quarter, apartment prices fell by 0.67% q-o-q (-0.59% 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 Q3 2018, prime rental yields range from just 1.7% to 2.4%, 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%.

House prices started to decline in 2016, and during that year apartment prices fell by 1.3% (-0.8% inflation-adjusted).

By region:
  • Lake Geneva had a 2018 house price decline of 1.44% (-2.35% inflation-adjusted), after rising 1.72% in 2017 and 0.25% in 2016.
  • Zurich had a house price decline of 0.84% (-1.76% inflation-adjusted), after rising 1.78% in 2017, 3.6% in 2016 and 3.43% in 2015.
  • Southern Switzerland had a house price decline of 1.56% (-2.47% inflation-adjusted) in 2018.
  • Central Switzerland recorded the biggest price decline in privately owned apartments, at 3.17% (-4.07% inflation-adjusted) in 2018.
  • Eastern Switzerland had a house price decline of 0.93% (-1.84% inflation-adjusted).
  • Northwestern Switzerland had a house price decline of 1.45% (-2.36% inflation-adjusted).
  • Western Switzerland's house prices were almost unchanged in 2018 from a year earlier (-0.85% when adjusted for inflation).
  • Berne recorded an annual house price increase of 1.8% during 2018 (0.85% increase when adjusted for inflation).


Switzerland house prices

The Swiss economy grew by about 2.5% last year, following growth of 1.7% in 2017, 1.6% in 2016, 1.3% in 2015 and 2.5% in 2014. Economic growth is projected to slow to just 1.1% this year, according to the International Monetary Fund (IMF), amidst geopolitical uncertainty caused by the Brexit and the US-China trade tension.

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.


Analysis of Switzerland Residential Property Market »

Rental Yields

Poor rental yields in Geneva and Zurich

If you are buying in Switzerland it is usually not the rental yield that interests you, because in the past Swiss rental returns been comparatively poor, and in any case buying by foreigners is significantly restricted. But as the global house price boom has gathered steam over the past 15 years, Swiss rental returns have stayed steady. Swiss rental returns are still classified by us as "poor". But rental returns in much of the world are now worse than they used to be, and Swiss returns are no longer particularly low.

Luxury apartments in Geneva command average square metre (sq. m.) prices between EUR 11,400 to EUR 13,500.

In our sample, a 120 sq. m. apartment in Geneva costs on average EUR 11,460 per sq. m.. A 120 sq. m. apartment can be rented for around EUR 3,827 per month. That means a yield of around 3.33%

In Zurich, the average price per sq. m. for a 120 sq. m. apartment is around EUR 12,050. A 120 sq. m. apartment can be rented for around EUR 3,950 per month. That means a rental yield of around 3.27%.

Round trip transaction costs are moderate on residential property in Switzerland. See our Swiss residential property transaction costs analysis and Transaction costs in Switzerland compared to other countries

Read Rental Yields »

Taxes and Costs

Swiss rental income tax is very high

Rental Income: Income is taxed at the federal, cantonal and municipal levels. The total tax liability could easily exceed 50%. Federal tax rates range from 0% to 11.5%.

Capital Gains: Capital gains are tax-free at the federal level (unless the gains are from the sale of business property). All cantons, however, levy their own taxes on gains from the disposal of immovable property located in the canton.

Inheritance: Inheritance tax is levied at the cantonal level, on the net assets transferred to the beneficiaries.

Residents: Residents are liable to pay federal, cantonal and municipal income taxes on their worldwide income.

Read Taxes and Costs »

Buying Guide

Total transaction costs are low in Switzerland

Closing costs are relatively low in Switzerland. Roundtrip transaction costs, i.e. the total costs of buying and selling a property, range from 3.5% to 8.9%. The estate agent's fee comprises a large chunk of the cost at roughly 3% to 5% (plus 7.6% VAT), usually paid by the seller.

The buyer pays the Real Estate Transfer Tax which ranges from 0.2% to 3.3%, depending upon the canton. Since January 2005, Transfer Tax has been abolished in Zurich.

Read Buying Guide »

Landlord and Tenant

Swiss law is pro-tenant

Around 61% of all households are renters; so it is not surprising that the law in Switzerland is pro-tenant.

Rents: he initial rent can be freely agreed between the landlord and tenant. However, within 30 days the tenant can appeal against the rent as abusive.

Tenant Security: Tenancies tend to revert to indefinite duration tenancies. This is not necessarily a disaster for the landlord, because three months termination notice can be given by either side.

But the court may give the tenant an extension of up to four years, in cases where and eviction would cause hardship.

Read Landlord and Tenant »

ECONOMIC GROWTH

Sluggish economic growth

Switzerland’s economy grew by 1.7% in Q1 2019 from a year earlier, according to the State Secretariat for Economic Affairs.

The Swiss economy grew by about 2.5% last year, after growing 1.7% in 2017, 1.6% in 2016, 1.3% in 2015 and 2.5% in 2014, according to the IMF. Slow growth is due to the high franc, considered "significantly overvalued", despite record low interest rates.

Switzerland gdp inflation
Economic growth is projected to slow to just 1.1% this year, according to International Monetary Fund (IMF.

Switzerland’s registered unemployment rate stood at 2.5% in March 2019, down from 2.9% a year earlier, according to State Secretariat for Economic Affairs, and the lowest for a decade

In April 2019, core inflation stood at 0.59%, according to the Swiss Federal Statistical Office. The central bank expects inflation to be around 0.3% this year and 0.6% in 2020.

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 cap had been introduced in 2011, when investors fled the crisis-torn Euro for Swiss assets, putting pressure on exports.

Switzerland exchange rate
However the SNB decided to abandon the cap 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 12 months the Swiss franc has appreciated against the euro by 5%, as investors have sought safe-haven currencies, fearing that US-China trade tension will escalate. The gains partially offset the 8% depreciation of the franc against the euro in 2017.
Newsletter

Get GPG fortnightly newsletters delivered to your inbox

A quick summary of global real estate trends.

Subscribe