Switzerland year in review

Swiss real estate - 2020 in review

2020 has been a tough year everywhere and Switzerland is no exception. Having made it through the first wave barely touched, Switzerland saw a sudden ramp-up in cases of covid in October and is now headed for a new lockdown with stricter measures to check the virus' rise.

But it hasn't been too bad a year for the Swiss housing market. Official statistics show residential prices broadly stable, though there are some differences of emphasis between different sectoral and geographical markets.

Renting or buying a property? What do residents tend to these days?

Halfway through the year, house prices had risen just 0.61% year-on-year, and that represented a slight fall from Q1 levels - not surprising given the coronavirus emergency. This left Switzerland looking broadly stable, with minimal price movements.

The third quarter saw the pace pick up a little, with stronger demand particularly in Suisse Romande - Geneva, Vaud, and Valais very strong, and Ticino/Tessin also showing strength.

Data on advertised real estate suggests that Swiss residents are swapping from renting to owner occupation and from apartments to houses, if they can afford it. Apartment rents fell 0.6% in November, while house rental prices increased by 1.7% month-on-month, and house prices were up 6.7%. (These figures are of course based on asking prices, not finalised transactions.)

According to Credit Suisse, apartments outside the major city centres are seeing a perfect storm of bad news. The vacancy rate may sound low at 1.72% (London, by contrast, usually runs above 2% and New York is hitting 6%) but in fact the total number of vacant flats rose again this year, for the eleventh year in succession. Low interest rates and low returns on other investments have pushed investors into the rental market, which is now heading for oversupply - except in the city centres which remain highly covetable, and expensive. There's less than a quarter of a percent of property vacant in Zurich!

Construction has been focused on the rental apartment sector, rather than on owner-occupied housing. This doesn't bode well for rental apartment prices, but the dearth of newbuild single-family units should help keep single-family house prices looking good. Combine tight supply with the post-pandemic preference for more space and private gardens, and it looks as if 2021 will be the Year of the House in Switzerland.

What should we expect of the market as a whole for 2021?

Geneva bank Edmond de Rothschild expects the Swiss market to show an increase in volume next year - but admits prices could be soft. Developments that were delayed by covid-related building site close-downs will probably come on the market between now and Q2 2021, following a period of relatively tight supply. The sudden increase in properties being marketed could soak up a lot of demand, and it wouldn't be surprising to see temporarily lower pricing levels.

However, any pricing decline is likely to be a temporary deflation, rather than a crash.

Switzerland has one property index that is quite unusual - the UBS 'bubble index' which analyses the risk of a boom-and-bust. The bubble index was up in Q3, but that's mainly due to the pandemic exacerbating imbalances in the market. And of course, house prices are not sustainable if you take the current, lockdown-affected, GDP statistics as your basis. Even so, on balance the market is in 'risk' but not 'bubble' territory - highly valued, but not so much so that UBS thinks a crash is likely.

It's also worth pointing out that credit applications, outstanding mortgages, and construction supply are all in neutral territory, so the Swiss market is not exposed to high debt, or massive oversupply - both of which, for instance, affected the Spanish market in the credit crunch.

UBS points out that economic recovery is expected to be fast once vaccines start being rolled out to the population. The only area that UBS has any concern over is Zurich and central Switzerland, where the house price to income ratio is stretched and rental yields are low.

Like everywhere in Europe, Switzerland has seen its economic growth cut markedly in 2020.

It has now confirmed a new lockdown for winter 2020-2021; even before that, the State Secretariat for Economic Affairs was forecasting a 6.2% fall in GDP. But in the longer term, once we get through to late spring and early summer 2021, the country looks set for recovery, and the housing market should be pulled along behind GDP.

Things to consider both for buyers and sellers

One thing that agents will be looking at very closely next year is space. Floorplans will become very important as lockdown-weary homebuyers look for big spaces, flexible live/work areas for telecommuters, and balconies or rooftop gardens (in apartments). Houses with good amounts of garden space will be particularly keenly sought after.

At the same time, there may be a move away from city centres towards the periphery, and away from the major cities to smaller satellite towns. This wouldn't be unlike what's already happening in France and could mean that transport access becomes a slightly lower priority for many buyers.

So, while house prices in Switzerland may not move a huge amount, it's likely the market in 2021 will be qualitatively different from what it was in 2019. Buyers will be looking for different features, in different places… but at broadly similar prices.