Swiss Property Market Surges

Switzerland’s residential real estate market is seeing growth in construction starts and completions, sales, rents and pricing for both single-family homes and apartments. Market observers believe the robust …

Switzerland’s residential real estate market is seeing growth in construction starts and completions, sales, rents and pricing for both single-family homes and apartments. Market observers believe the robust trends are the result of positive economic expansion, low interest rates and increased demand in housing. The increasing value of the Swiss franc, however, may stifle growth moving forward as inflation rises and costs increase. The Swiss government is moving to combat this introducing various financial measures and opening up the real estate market to foreigners. For more on this continue reading the following article from Global Property Guide.

Switzerland’s property market remains strong.
  • Prices of owner-occupied apartments rose 5.08% (4.45% in real terms) over  the year to Q1 2011
  • Prices of single-family homes rose 4.37% (3.75% in real terms) over the same  period.
  • Apartment rents increased 1.44% (0.84% in real terms) over the year to Q1  2011.
The Swiss housing market experienced healthy price increases during the last decade. From 2000 to 2010:
  • Prices of single-family homes rose by 35.9% (25.1% in real terms)
  • Prices of owner-occupied dwellings increased by 53.6% (41.5% in real terms)
  •  Prices of rental apartments rose by 35.8% (25% in real terms)
In 2010, the total number of new apartments completed was 40,167 units, up 3.9% from the previous year, but down from an annual average of 42,000 units from 2006 to 2008.

There were about 269,202 apartments under construction, up 11.14% from a year earlier. On the other hand, the total number of new apartments authorized dropped by 1.5% to 49,517 units over the same period. In the year to end-Q1 2011:

  • New apartments completed were up by 4.5% to 8,798 units
  • The number of apartments under construction rose by 5.74% to 68,307 units
  • The number of apartments authorized increased 2.02% to 13,719 units
There are several possible reasons for the continued strength of the Swiss housing market:
  • Low interest rates spurred strong real estate demand.
  • Switzerland is widely viewed as a “safe haven” by wealthy foreigners.
  • An increase in the number of immigrants has led to higher demand for houses.  Over the past four years, net migration totaled 330,000 people.
  • After the collapse of house prices in other countries, Swiss citizens and  residents moved their investments back to the domestic housing market which is relatively more stable.
  • The Swiss economy emerged from recession in mid-2009, and in 2010 the  economy expanded 2.55% from a year earlier.
However, the country’s economic growth is projected to slow to around 2% in 2011, with the Swiss franc appreciating at an uncontrollable pace. The official exchange rate stands at €1=CHF1.085 in early-August 2011, a rise of about 30% from the same period last year. Over the previous year, the franc has also soared about 32% against the US dollar.

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The strong Swiss franc has been weakening exports and stoking inflation. Swiss National Bank (SNB), the country’s central bank, has introduced numerous measures to halt the franc’s rise to record levels against the beleaguered euro and US dollar.

  • The Franc’s money market liquidity was almost quadrupled. SNB boosted the monetary base from CHF30 billion to CHF80  billion. Then in August 10, 2011, SNB announced it would increase it further to CHF120 billion
  • Currency swaps were introduced
  • The key rate was slashed to close to zero in August 3, 2011, after the franc climbed to just below parity with the euro. The special rate for bottleneck  financing facility was 0.59% in June 2011
In addition, there are speculations that SNB would further act to counter strength in the local currency by setting an exchange rate target against the euro. However, local analysts are doubtful whether implementing an exchange rate target would be effective given the nature of flows which have driven the appreciation of the franc. "Swiss strength is being driven by savings deposits and other real-money flows out of the euro zone and into Switzerland, rather than speculators," said Kiran Kowshik of BNP Paribas.

Despite this, residential property prices are expected to continue rising in 2011, albeit at a slower pace compared to the previous year, according to Credit Suisse.

The Swiss have for a long time restricted the sale of property to foreigners. Now the Federal government has set an annual quota of permits for non-resident foreigners seeking to acquire property in Switzerland. In addition, cantonal authorization is needed before gaining a title. Each canton has slightly different rules, varying from commune to commune within the canton.

However in 2010 each canton gains responsibility for its own foreign property acquisition laws. This may result in faster transfer of property titles, as opposed to the current delays.

Foreigners cannot acquire residential real estate for buy-to-let investments except for subsidized housing which has below market rents.

This article was republished with permission from Global Property Guide.

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