As Christmas approaches and the New Year looms it is time to start reflecting on the past and looking forward to what 2017 may bring. In order to do so, we examine an alternative proxy for the Swiss property market – the SWX IAZI Private Real Estate Price Index.
This index, which is traded on the SIX Swiss Exchange, is calculated using information collected quarterly from banks, insurers and pension funds on the actual changes of ownership and the valuation of specific properties. This survey accounts for more than 60% of the total Swiss property transactions and equivalent to more than 25,000 ownership changes per annum and measures both private single-family homes and freehold apartments.
Source: IAZI CIFI
The Index clearly follows the sort of upward trend in prices that has been discussed in previous articles. It also indicates that the fears of slowed growth in 2016 seem somewhat unrealised, as prices have continued to grow with a slight jump again in Q3 2016. This jump during the Q3 period would not seem uncommon and this quarter appears, more often than not, to show the strongest growth of the quarters.
If we were to assume that this trend were to persist, even if it were to lose some momentum, then there should be some sustained growth during the current fourth quarter. That said, this should be the season to be considering purchasing a property in Switzerland – in the same way as Q3 appears to be consistently the strongest quarter for the Index, the first quarter has tended to be stronger than the fourth. Therefore, hesitation may result in paying higher prices upon entry into the New Year.
This trend of Q4 having a lower price index than the preceding and subsequent quarters ties in with the fourth quarter having negative consumer sentiment regarding the likelihood of major purchases. As has been discussed in the article “Swiss Consumer Confidence Prevents a Property Bubble”, this may be related to the timing of the quarter in terms of winter and the Christmas period that may redirect spending elsewhere. Therefore there may be an opportunity to benefit from this generally weaker quarter to capitalise on potentially lower market price growth, before prices are rejuvenated at the start of the New Year.
Once it is decided to make the purchase, the choice then sits on whether to find a private single-family house or a freehold apartment. According to the SX IAZI Price Indices for private houses and freehold apartments, until the end of 2012, the two property types followed a similar growth pattern. However, once 2013 approached, an ever-widening gap has developed between the two indices.
Source: IAZI CIFI
Over the past two years the private house index has levelled off, displaying close to zero index growth. It would seem that the concerns over the property price inflation has been realised with this category of property in Switzerland. However, there has been a continued steep increase in the price index for freehold apartments even through 2016. It would therefore appear that the demand for this market has remained robust but the question therefore remains as to how long such a steep growth can be sustained.
Under the assumption that the apartment price index could continue to progress, there may be further motivation to consider acting sooner rather than later in terms of deciding on purchasing an apartment. However, with the levelling off of the private house index already, there may be less risk of price fluctuations in the short- and medium term.