Swiss companies are planning average wage increases of 1.0 percent for 2027. With inflation forecast at 0.8 percent, households will have little additional purchasing power. Companies are also showing restraint when it comes to hiring new employees. The majority of the companies surveyed expect their workforce to remain largely stagnant.
Housing costs are a burden on households
This trend is particularly relevant for the real estate market. Rents and home prices have risen significantly in many regions in recent years. Without noticeable increases in income, it will become increasingly difficult for households to cover higher housing costs.
This is making the issue of affordable housing even more pressing, particularly in the economically strong regions of Zurich, Geneva, Basel, and Zug. While the ongoing housing shortage is supporting demand, limited purchasing power could restrict rent growth potential in certain market segments.
For project developers, therefore, striking the right balance between location, apartment size, finish standards, and rent is becoming increasingly important.
Higher Financing Costs Possible
In addition to wage trends, economists expect economic growth of 1.5 percent for 2027. At the same time, UBS anticipates a gradual increase in the SNB’s key interest rate from the current 0 percent to 0.25 percent in March and to 0.5 percent in June 2027.
Rising key interest rates could make money market financing and upcoming refinancing more expensive in particular. For long-term fixed-rate mortgages, however, capital market expectations play a greater role.
For investors and developers, this means that the financing structure, equity investment, and expected rental income must be carefully aligned. Especially for larger new-construction projects, even moderate changes in financing costs can affect returns.
Differentiation in Real Estate Investments Is Gaining Importance
The combination of limited purchasing power and potentially rising interest rates calls for a nuanced view of the residential real estate market. While affordable apartments are likely to remain in high demand due to limited supply, high-priced new construction projects could come under greater pressure.
For owners and institutional investors, sustainable rental income over the long term, efficient building designs, and a realistic assessment of local demand are therefore becoming increasingly important.
Weak purchasing power growth and potential interest rate hikes are increasing pressure on real estate investments. Affordable rents, realistic return expectations, and careful location selection remain crucial.
