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...
Real estate market in Switzerland
Despite economic and political uncertainty shown elsewhere on the global market (Brexit making a notable impact across Europe) Switzerland continues to remain a reliable real estate bet. The economic outlook for 2020 is resolutely positive as it was in 2019 when unemployment rates were at a historic low of 2.4, and this anticipated to rise by 2.5% in 2020. Furthermore, employment growth has risen 1.2% year on year.
The combined economic growth in these areas is a great sign for real estate buyers, who can be confident that the Swiss economy will be stable for the foreseeable future. It seems that many investors already agree. This is reflected in a recent EY 2019 study that showed the vast majority of those surveyed (94% to be precise) considered Switzerland an attractive or very attractive option for real estate investment location. Most participants in the survey still regarded Switzerland very highly in comparison to the rest of Europe, with over 81% still regarded Switzerland in this way, which was the exact same percentage for 2018 too.
Looking for a property in Switzerland and don't know where to start? We've got you covered in this comprehensive property guide.
Find out how to buy property in Switzerland!
What are some of the main reasons attributing to the real estate market stability, alongside the low unemployment rates? In similarity with 2019 (characterized by moderate mortgage growth with a small uptake in property prices), the real estate market situation is expected to remain consistent in the next twelve months, largely due to low-interest rates for mortgages. Swiss central bank has its lowest value at -0.75%, fixed rates start at 0.5%, so for instance you’ll get a LIBOR mortgage at 0.5-0.7% with a fixed repayment term – 3 to 5 years, and fixed rates start at 0.56% (3 years repayment) up to 1.25% (if you decide for 15 years mortgage contract). Rates differ from bank to bank, so be sure to check multiple offers.
According to the UBS Swiss Real Estate Bubble Index, this also means the risk of a real estate bubble has dropped. In fact, Switzerland has left their ‘risk’ zone for the very first time since 2012. UBS cited the strong Swiss economy as the main reason for this, as well as average incomes increasing at a faster rate than mortgage debt, coming in above 2% last year. In fact, overall the volume of outstanding household mortgages is at the slowest rate since 1998. Other recent trends have also dramatically reduced the chance of a real estate bubble.
For example, the average house price in Switzerland has increased by a relatively small percentage since 2015. In the last quarter of 2019, property prices only increased by approximately 2.8%. Before this, house prices had been dropping for the ninth consecutive quarter. The reason for this stagnation in property prices has been partly due to the Swiss government's efforts to help cool down the overheated property market. This was primarily achieved through implementing stricter lending criteria by the Swiss National Bank in order to help lower overall household debt.
Before the government’s attempt to control the situation, there had been a whopping 15 years of uninterrupted increases in property prices in Switzerland - practically unheard of in Western Europe.
The Swiss Federal Statistical Office has reported that vacancy rates in Switzerland have risen for the tenth time in a row. As of June 1, 2019, 75,323 vacant residential properties were reported, representing 1.66% of the Swiss housing stock. Nevertheless, it is worth noting that this is still far below the average vacancy rate of a typically healthy housing market, and the increase has been noted as dramatically weaker than in previous years.
Generally speaking, a vacancy rate of roughly 5% is considered to be healthy for a country, and in the major Swiss cities, this vacancy rate is far lower than the 1.66% quoted. In fact, in the five largest Swiss cities, the vacancy rate barely scrapes 0.46%. This is the reason why some rental prices have climbed in the biggest cities - lower vacancy rates equal higher demand for accommodation and therefore higher rents.
Interestingly, the vacancy rates differ considerably between the major cities and the Swiss countryside. For instance, in the cantons of Thurgau and Solothurn, which had previously been impacted by the lack of supply, vacancy rates are now at an average of 3% - which is double the Swiss average. This suggests that the vacancy rate gap between wannabe city dwellers and those in the countryside continues to become even wider.
According to 2019 data provided by KPMG, the transaction market for residential properties can be considered calmer than in previous years. Net initial yields for properties in the residential market dropped dramatically from 3.6% in 2017 to 2.99% in 2018, and with low-interest rates expected to continue, this is unlikely to change, with the price level more or less reached on the residential property market.
Higher purchase prices for residential properties may be unlikely due to growing vacancy rates in parts of the country, as well as asking rents also stagnating at the same time. However, it is much better news when it comes to the commercial and mixed property market: net yields have fallen by -20 basis and -40 basis points in 2019. That means investors are more likely to invest in this lower yield property, in part due to the high prices of residential properties.
Swiss citizens make up approximately 85% of all buyers, but it should still be noted that foreign investment is still popular amongst those from Britain, Canada, Russia, Belgium, France, and Germany.
In terms of rental demand from foreigners, there is seemingly no sign of a reversal in the trend of immigrants from Portugal. According to KPMG data, they make up the third-largest national contingent in Switzerland after Italians and Germans. However, their overall numbers are reducing: this number has been decreasing at about 4,000 units in additional demand for rental apartments, in comparison to the average for the past 10 years.
However, the contraction in Portuguese demand is most noticeable in areas where there is a large Portuguese population (several alpine regions and most parts of western Switzerland). Comparatively, in German-speaking Switzerland, countries from the former Yugoslavia and Germany are the largest foreign population. It is believed that this is one of the main reasons for the marked decline in immigration in French-speaking regions (–13.4%) 2018.
Due to the high numbers of construction projects being carried out in Switzerland, many Swiss tenants are now moving from old to new buildings, and this trend is expected to continue. When you take into consideration vacancies for new housing, the average rate is just 0.22%. Consequently, investing in new properties remains a safe bet for property buyers in Switzerland.
Buying property in Switzerland has been a long-standing attractive opportunity thanks to the possibility for fiscal incentives (especially for larger investments) as well as a very favourable taxation system compared to Europe. This is providing that you are a Swiss citizen, have a Swiss residency permit C or are foreign resident from an EU/EFTA state.
When you also take into consideration the efficient bureaucracy and highly qualified pool of talent it is hardly surprising as to why buying in Switzerland is seen as being so advantageous to many.