Price correction in Swiss real estate is gaining momentum
The interest rate hikes that have taken place throughout Europe as a result of rampant inflation have also had a significant impact on the real estate market in Switzerland. While interest and repayment rates for homebuyers are rising more and more, real estate prices in some regions are falling, sometimes significantly. Real estate expert and Betterhomes CEO Cyrill Lanz gives an overview of the current situation.
Current interest rate situation in Switzerland
After more than seven years, the Swiss Confederation wants to end the period of low interest rates on September 21st. An increase of half a percentage point to 0.25 is planned. In scenarios that assume further inflation, a 0.75 percent increase to 0.5 percent is planned.
As early as mid-June, the SNB raised interest rates by half a percentage point to minus 0.25 percent as a first step. The Governing Board weighted the dangers of an uncontrollable fall in prices more than that of a weakening of the export economy. SNB President Thomas Jordan stated: “The price stability goal is absolutely central to us.”
Real estate prices have plummeted in some cases
What promises relaxation from an economic point of view is being observed critically by real estate buyers. Because even before the National Bank’s decision, the interest rates for fixed-rate mortgages had risen, in some cases significantly. At the same time, real estate prices fell in certain regions.
For example, the residential real estate price index of the Federal Statistical Office shows that the value of real estate fell by 0.4 percent in the first quarter of 2022, but partially recovered in the second quarter. There were sometimes significant differences depending on the region and type of property. Owners of smaller single-family homes in smaller towns such as Glarus, Davos or Langenthal were hardest hit. Here the discounts were recently 4.2 percent, in rural regions such as Dissentis and Maggia 1.7 percent and in larger cities such as Winterthur, St. Gallen and Lugano 1.4 percent. Losses in condominiums were even greater. Losses of 3.3 percent were recorded in medium-sized cities and 3.2 percent in rural areas.
Consequences of the development for real estate buyers and owners
Due to falling prices, there are already regionally noticeable declines in demand, with places in less good locations being particularly affected. For a long time it was also possible to achieve high prices here with relatively little (marketing) effort. That should change now. The following scenarios are particularly conceivable.
developments on the buyer side
As interest rates rise, loans also become more expensive. This increases the monthly burden for all those who use financing to buy real estate. Two problems arise from this.
First of all, it will no longer be possible for everyone who wants to buy to get financing because they cannot bear the monthly burden. Accordingly, the demand will decrease. While this is not currently a problem due to the excess demand, it could become one if follow-up financing expires in 10 to 15 years and not all buyers can afford further financing at less favorable conditions.
The second problem is closely related to the first. If follow-up financing can no longer be served and properties have to be sold, more properties come onto the market, which meet falling demand due to higher prices. At the same time, there is a risk for the banks that they will no longer be able to sell mortgaged real estate at the intended price if follow-up financing fails.
Developments on the owner side
If demand falls as a result of prospectively rising interest rates, this also becomes a problem for all those who bought the property to maintain the value of their assets. If prices go down, you can get less for them. In that case, the value of the assets protected against currency depreciation is lost elsewhere.
More houses will come onto the market in the future
Around half of all homes in Switzerland are owned by pensioners . Many of these houses will come onto the market in the next few years. “Credit Suisse evaluated the data exclusively for Blick. These are impressive: Spread over the next 23 years, a total of over 419,000 homes will become vacant because pensioners move out or die inside. The number of houses that come onto the market in this way will increase every year from now on. If there are still 3,500 houses in 2023, according to CS calculations, there will be over 40,000 homes by 2045.”
Recommendations for buyers The most important thing for buyers and owners is not to panic. A look at the development of interest rates over the past ten years makes it clear that many financing deals were still concluded at 3.2 to 4.0 percent. Moderate interest rate increases are currently not a problem for these people. They can continue to make their interest and principal payments. Problems are to be expected here at best in the course of an economic slump with sharply rising unemployment figures. But here, too, a stable picture emerges. Between 2011 and 2021, the rate was constant between 4.4 and 5.1%.
The most important tip is to secure the interest rates, which are still low in a long-term comparison, for as long as possible. Above all, this includes the need to take care of follow-up financing as soon as possible. Here, for example, forward loans can be used. However, interest premiums should be taken into account here in order not to incur additional long-term costs.
About Betterhomes
Betterhomes stands for success in real estate brokerage on fair terms and was able to establish itself as the largest independent real estate agent in the home market of Switzerland with the idea of Immobilienfairmittlung® – an innovative combination of the latest technology and local expertise – and is just as successful in Germany as it is in Austria.
The company guarantees real estate providers the best price-performance ratio of a brokerage service and offers real estate seekers the largest possible and most attractive range of real estate.
Further information: Betterhomes