European Property Prices vs Income

When it comes to purchasing a property in Switzerland, the one key consideration is the price of the properties. Prices have risen strongly and this has placed Swiss cities among some of the most expensive cities in Europe. While this statement is true and property prices may be in a bubble, the statement relative to other European cities paints only a generalised picture. There are many other variables and measures to consider when comparing prices across cities and countries.

Two common measures that are used to represent property prices across countries are the price to income ratio and the affordability index. Like the Big Mac Index, these two ratios provide greater clarity in terms of how affordable the property prices are relative to the country’s earnings capacity and thus reflect the ability to purchase a property assuming income is generated from within the country.

The price to income ratio represents the average price per square metre of a 90sqm apartment as a percentage of net disposable family income. As such, the lower the ratio, the better and more affordable the properties are. Comparatively, the affordability index represents the ability to afford mortgage repayments relative to family income. The higher the index, the more a family would be able to afford to purchase the property and cover necessary loan payments.


Source: Numbeo


It is on these two measures that Swiss properties begin to appear more attractive in a European setting. According to the Numbeo series, by far the least affordable city is London. The average price per square metre for an apartment in London absorbs a significant 30.9% of the monthly net disposable income. On the other end of the scale, the most affordable of the European capitals is Brussels, with a price to income ratio of only 7.4%.

Surprisingly in comparison, the three main Swiss cities (Basel, Geneva and Zurich) fare well against their European counterparts. In fact, the Swiss cities tend to be ranked towards the lower end of the scale implying that, while prices are high, the country’s income and standard of living are sufficient to allow buyers to afford the prices being charged. This could have partly contributed towards the sustained property price growth over the years.

Even Zurich, which is the worst ranked of the three Swiss cities, had a price to income ratio in mid-year 2016 of only 10.5%. This is well below not only the premium capitals such as London, Rome and Paris, but also most of the Eastern European capitals where low incomes are unable to efficiently cover lower property prices.

Additionally, despite the continued price rises, Geneva has become even more affordable relative to the mid-year 2015 levels. The price to income ratio has narrowed from 10.8% down to 9.5% and the affordability index has increased from 1.5 to 1.8. The improvement in these measures may be in part due to the wage growth and the particularly low mortgage rates, which were discussed in the Knock-on Effect article.

Based on these two measures, the Swiss property market shows some additional attractive qualities, especially for those earning Swiss-level incomes. Therefore, with the property prices flattening out in 2016, there may continue to be further improvements in Swiss property affordability.