Real estate market in Switzerland: Inflation due to the pandemic and the war in Ukraine

Inflation hits the Swiss real estate market

A seemingly never-ending phase of low interest rates has caused real estate values to skyrocket. Find out how the COVID-19 pandemic and the war in Ukraine are bringing an end to the low interest rate era and what this means for the Swiss real estate market. The Real Estate Monitor Q2 on the consequences for owners, tenants, and construction companies.

The real estate market has not been spared from inflation

Fiscal policy stimulus measures and supply chain disruptions caused prices to increase during the pandemic. Nonetheless, central banks projected only temporary inflation in 2021. When a decline in inflation rates failed to materialize at the end of the year, markets revised their expectations, which was reflected in dramatic increases at the long end of the yield curve. Central banks are being forced to act in order to avoid losing their credibility entirely. Rising interest rates are generally bad news for real estate, as the many different consequences demonstrate.

1. Impact on landlords: Rising interest costs

Due to the long lifespans of real estate, property valuations are very sensitive to changes in interest rates. The reference rate system used in Switzerland is very sluggish, however, which is passed on to landlords. The latter cannot immediately pass on rising financing costs to their current tenants. This impacts the net earnings of residential investment properties during this interim phase.

The speed at which landlords can pass on this additional expense or the reference interest rate begins to increase primarily depends on the interest rate scenario chosen by the Swiss National Bank (SNB). The decisive factors will be the scale and pace of monetary policy tightening in the next few years. However, an increase of the reference interest rate before 2024 seems unlikely.

Three scenarios for the prime rate hike

The pace and scale of prime rate increases affect the reference interest rate.


Prime rate hikes

by the SNB

Reference interest rate rises for first time

"High" scenario

15 prime rate hikes by 25 basis points each up to 3%, starting in September 2022

End of 2023

"Medium" scenario*


7 prime rate increases up to 1%

Middle of 2024

"Low" scenario

Prime rate increase up to 0%. Subsequently held constant.

After 2027

* Most likely scenario

Real estate market: Scenarios for the SNB prime rate

Real estate market: Scenarios for the SNB prime rate

Three scenarios for the development of the prime rate until the end of 2027.

Source: Credit Suisse
Last data point: 01.05.2022

2. Impact on buyers: Condominiums more expensive again

The recent dramatic interest rate increases for Fix mortgages are also leading to a trend reversal for residential property: For the first time in 13 years, the total cost for residential property upon the conclusion or extension of a mortgage exceeds the cost of renting a comparable apartment. Although the costs of mortgage interest are still substantially lower than comparable rents, there is an ownership premium of 3.1% once maintenance and other costs are factored in.

For many current homeowners, this will not change much in the short term, since Fix mortgages represent 82 percent of the total mortgage volume in Switzerland according to the latest figures from 2020. However, upon expiration of these mortgages, higher mortgage interest costs may also be due. Accordingly, reserves should be set aside today for higher mortgage interest due in the future.

Real estate market: Residential property is once again more expensive than rental housing

Real estate market: Residential property is once again more expensive than rental housing

Comparison of the financial cost of residential property and rental housing, taking into account all relevant cost factors

Sources: Credit Suisse, Meta-Sys
Last data point: Q1 2022

3. Impact on the construction industry: Massive increase in building material prices

The scarcity of major construction materials as a result of the pandemic and the war in Ukraine are being felt in the building sector in the form of sharply rising prices. The prices of metal products such as reinforced steel and aluminum have skyrocketed.

While delays in entire construction projects due to a lack of building materials were previously exceptional, the sector must now brace itself for further increases and severe fluctuations in prices and delivery times. This hampers planning security, while higher building costs contribute to the already significant drop in returns on real estate investments. The massive increase in building costs could lead real estate investors to put projects with excessively tight margins on the backburner or delay non-urgent investments in portfolio holdings.

Real estate market: Dramatic price increases for metal products

Real estate market: Dramatic price increases for metal products

Building material price indices, annual average for 2019 = 100

Sources: Swiss Federal Statistical Office, Credit Suisse
Last data point: 04/2022

4. Impact on residents: Ancillary costs increasing

The outbreak of war in Ukraine and the looming shortage of energy commodities have caused wholesale prices for heating oil, natural gas, and electricity to skyrocket. Depending on the energy source, tenants and owners are exposed to the cost increase to varying degrees: For residents of homes with fossil fuel heating sources, the energy price hike of 2022 could mean a heating cost increase of roughly 38 percent. In contrast, heating energy costs for an average apartment with a heat pump have only increased by just under 3 percent. Further expenses are likely to be added due to the sluggishness of gas prices for end customers and the price regulations for household electricity. 

Real estate market: Oil heating causing sharpest increases in ancillary costs

Real estate market: Oil heating currently causing sharpest increases in ancillary costs

Heating costs of an average Swiss household (99 m2 and 2.2 persons) between 2019 and 2022 (*2022: forecast) depending on the energy source

Sources: Swiss Federal Statistical Office, Prognos, EnergieSchweiz,, Credit Suisse
Last data point: 2022

What does the current situation on the real estate market mean for you personally? We would be happy to help. 

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