Investing into the Swiss Property Market Market Review, Q3, 2016

Sitting on a Peak

On the back of relatively stable economic growth of around 1-2% p.a. during the last few years, the Swiss housing prices and home ownership rates have steadily increased. This increase has endured since the turn of the century, with a cumulative growth of c.a. 84% on residential apartment prices from the end of Q4 1999 until the end of Q3 2016. Even during the global recession that hit the property market around the world primarily through 2007 to 2009, the Swiss house price index remained firm.

The Swiss property prices have been fuelled over the years as a result of immigration, employment, income levels, low borrowing costs and the view that real estate is a good investment option. However, the strong growth has simmered down during 2016 to around 1% compared to 2015 prices. Yet this is no big surprise. The cooling off of the market had been predicted earlier this year by Credit Suisse. The bank announced that, primarily due to a slowdown in immigration and property prices becoming less affordable for younger buyers, there would likely be only 1% annual growth in property prices during 2016.

Sustained growth in property prices has also resulted in UBS expressing concern that Switzerland continues to be at risk of being in a property bubble. Despite the fact that property price growth has slowed down, prices have remained at peak levels. This has been supported by low interest rates, which has made real estate an interesting investment opportunity, especially residential assets that can be rented out.

The boom in the property market has positioned Switzerland as one of the more expensive countries in Europe in terms of average cost per square metre. Based on a 120sqm apartment, buying a property in Switzerland will set the purchaser back an estimated EUR 11,476 per square metre. While this is less than the rate in the UK, it remains more than double the European average, which is just above EUR 4,900 per square metre.

That said, the European average is weighed down by lesser developed property markets from Central and Eastern Europe that were hit particularly hard during the 2007 to 2009 crisis and are yet to fully converge to Western European levels. If these less developed European countries (and Monaco) were to be excluded from the sample, the average price would tend closer to EUR 8,000 per square metre. While this still remains below the Swiss average, the Swiss prices are relatively comparable to those of Austria and France, which range between EUR 10,000-11,000 per square metre.



Source: Global Property Guide * These prices reflect the average price per square metre for apartments located in the city centre of premier cities.

In spite of already peak prices and concerns of a property bubble, there are still opinions that the market may continue to see further annual price appreciation in 2017 of between 1-2%. This outlook is supported by the expectation of continued stable economic growth and favourable lending conditions in the country.