The Swiss real estate market insensitive to the rise in interest rates
While in many regions property prices have undergone a sharp correction with the increase in interest rates, in Switzerland there is not even a shadow of it. The reason is mainly the high excess demand.
In Sweden, house prices fell by around 6% this year. The situation is similar in other regions that have experienced a strong real estate boom in recent years, such as New Zealand. In Germany, however, the boom has come to a halt: prices are falling slightly or stagnating. In Switzerland, however, the picture is different, in the Swiss territory the cooling is barely noticeable, even in the second quarter the prices of residential property recorded a new sharp increase compared to the same period of the previous year. Ownership apartments increased by about 7%, while for single-family homes the increase in prices was nearly 9%.
At first glance, these figures may be surprising in light of the increase in financing costs and the generally high level of prices. However, there are valid reasons for a stable development of the Swiss real estate market. The main support for property prices has been and remains the scarcity of supply that has persisted for some years now. Although the rise in mortgage rates has a dampening effect on demand, as evidenced for example by the decline in search subscriptions, the Swiss real estate market is still characterized by a clear excess of demand. At the moment, the end is not in sight: the downward trend in building permits, observed for some years, has also continued in the current year. For single-family homes alone, supply increased slightly in the second quarter, while remaining far below the high demand.
Furthermore, the persistence of high population growth has a positive effect on demand and, consequently, on the stability of prices in the housing market. In particular, a level of immigration which remains high translates into a constant increase in housing needs and a support in demand.
Last but not least, the Swiss real estate market also benefits from the country's particular position in terms of inflation trends. The relatively low inflation internationally is reflected in comparatively moderate increases in interest rates. Combined with the strict regulations in place regarding endurance, it is a circumstance that guarantees a lot of stability. Last but not least, the concomitance of a restrictive mortgage lending policy and a low level of interest rates could prove to be an important factor in stabilizing home ownership prices in Switzerland, even in the event of a rather sharp deterioration in the economic situation.
Correction of real estate investments
Unlike the trend recorded for owned homes, the prices of indirect real estate investments responded decisively to the increase in interest rates. At the end of July, for example, real estate funds were 13% lower than at the beginning of the year. The shares of real estate companies have temporarily lost about 11%, despite having significantly recovered in the meantime. The increase in rates reduces the attractiveness of real estate funds and shares, with a relatively direct impact on the performance of the prices. In the short term, rather high volatility is still expected in this segment; Over the medium to long term, the outlook for Swiss equities and real estate funds remains unchanged in a stable real estate environment.
Price performance of indirect real estate investments: