second home initiative market rallies following the second homes act
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Impact of the second home initiative: Demand for holiday homes is picking up 

Demand for holiday homes in the tourist regions of Switzerland has long been plagued by uncertainty, caused by the adoption of the second home initiative. This has been compounded by the strength of the Swiss franc, which has taken its toll on interest in second homes from abroad. But things now seem to have bottomed out, and the market looks set to pick up despite the implementation of the Second Homes Act. 

Second home initiative created uncertainty on the real estate market

The demand for holiday homes has recently started to pick up slightly. This comes after the market was knocked off course for several years following the adoption of the second home initiative. When the people of Switzerland voted in favor of the initiative in the referendum on March 11, 2012, it came as something of a surprise. The Second Homes Act duly came into force in January 2013, severely restricting the building of second homes. Since then, with just a few exceptions, only second homes that are managed and rented out (see box) can be built in those municipalities in which second homes make up more than 20 percent of the total housing stock. This currently applies to a total of 359 municipalities – including almost all tourist resorts in the Alps.

municipalities with more than 20 percent second homes

Municipalities in which the proportion of second homes is more than 20 percent

Data correct as of 31.12.2018

Source: Federal Office for Spatial Development

At first glance, the restrictions on the construction of holiday homes might have suggested that prices would rise. In fact, the price of second homes dropped sharply following the adoption of the initiative. One reason for this was the temporary imbalance between supply and demand during the transitional period between the referendum vote and implementation. There was also a prolonged period of uncertainty over the detail of the Second Homes Act, combined with a drop in foreign demand.

Temporary rise in demand with the second home initiative

Shortly after the popular initiative got the go-ahead, there was a flurry of applications for second homes. "After the unexpected adoption of the initiative, lots of places saw a real final push on second home projects," explains Thomas Rieder, real estate expert at Credit Suisse. Of these projects, however, only those properties with an official building permit granted by the end of 2012 and not contested could actually be built.

There followed a brief construction boom in numerous mountain regions, and from 2014 onwards many places saw large numbers of holiday homes come onto the market. So, paradoxically, the supply of holiday homes initially shot up despite the second home initiative. 

 building permits in municipalities affected by the second homes act

Building permits in municipalities affected by the Second Homes Act

Building permits rose in the short term, but have now fallen back to significantly below the historic average.

Number of residential units, moving 12-month total

Source: Baublatt, Credit Suisse

In parallel, demand fell sharply after the adoption of the initiative. Real estate expert Thomas Rieder detected enormous uncertainty among potential buyers: "They wanted to see how the new Second Homes Act would pan out first, before investing." For example, they were uncertain if they would really be able to sell their second home as a holiday home later on. And "because of the strength of the Swiss franc, holiday homes in Switzerland were suddenly much more expensive again for foreigners."

In the long term, the Second Homes Act will lead to a supply shortage

Contrary to expectations, the combination of rising supply and falling demand led to a surplus of second homes after the initiative was adopted. This caused prices to fall in many places. In the meantime, however, market conditions have improved and things are looking up again: "Since the Second Homes Act came into force, banishing any uncertainty, demand from within Switzerland has gradually picked up. There have also been initial signs of a similar trend among foreign buyers since 2017. This is thanks to the depreciation of the Swiss franc, along with the economic upturn in the EU," according to Thomas Rieder.

In his expert opinion, holiday homes without usage restrictions will continue to increase in value in the long run. The price of land, in particular, looks set to rise, given that the supply is limited and owning a holiday home in the mountains is likely to remain an attractive option. This is particularly true of destinations with guaranteed snow, good facilities, and a cosmopolitan vibe.

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