St. Gallen real estate market: Affordable residential property

"Demand for residential property in St. Gallen is likely to remain high." 

Interested in buying real estate in St. Gallen? The region is proving increasingly popular with residential property buyers. Ladina Rhyn, Head of the Mortgage and Lending Center for Eastern Switzerland, discusses the appeal of the St. Gallen real estate market. 

Ms. Rhyn, what's the latest on the real estate market in the St. Gallen region? 

Ladina Rhyn: We're seeing huge demand for condominiums and single family dwellings, making this an active and very attractive market. Vacancies are limited due to the fact that the supply of residential property within the region is unable to match the high level of demand.

The situation is slightly different in the case of rental apartments. This segment is seeing excess supply in some instances, meaning there's a high vacancy rate for rented accommodation in the St. Gallen region. 

What was the market situation like last year? 

It was a very turbulent year for everyone concerned. Initially it was unclear whether brokers would still be able to arrange property viewings. During the lockdown, land registries had limited opening hours and appointments couldn't take place as planned. It meant we too had to look for new solutions so that we could continue to be there for our clients. Fortunately the situation calmed down a bit from June onward.

In addition, demand for residential property picked up again. The fact that there were not enough owner-occupied properties coming onto the market meant the high level of demand couldn't be met. In the high-end segment, there were even fewer properties available. 

What steps have you taken to adjust to this extraordinary market situation? 

Our client meetings now take place virtually. It's been quite a learning curve for us, because as a client-facing organization we're accustomed to close client contact. Brokers likewise took advantage of digitalization and switched to virtual property viewings. 

The number of building permits for new owner-occupied properties has been on the decline throughout Switzerland for some time. Is that also the case in the St. Gallen region? 

Yes, the same trend can be seen here as well. The number of building permits for condominiums has fallen continuously over the last eight years. The trend became slightly more pronounced again last year. By contrast, the rental apartment segment is experiencing an all-time high. At present, roughly 400 more rental apartments are being built in the Canton of St. Gallen compared with ten years ago. 

And what's the situation for single family dwellings? 

The picture here is fairly similar to what we're seeing in the case of condominiums. The number of single family dwellings being built at the moment is only half the level of around 15 years ago. This decrease is partly due to the limited opportunities for construction. Building plots in the city of St. Gallen are highly sought-after, so they often change hands without being publicly advertised.

Fortunately we've seen a slight uptick in housing construction across the canton recently. Real estate prices in the likes of the Linth plain and St. Galler Rhine Valley are still fairly affordable and we're seeing brisk construction activity with a number of exciting new housing developments. Overall, however, the figures remain fairly low. 

"The St. Gallen region has an active and very attractive real estate market."

Ladina Rhyn, Head of the Mortgage and Lending Center for Eastern Switzerland

Do you think the COVID-19 crisis will bring lasting changes in the real estate market?

Definitely. Having their own home has become more important to people during the pandemic, and the demand for residential property is consequently increasing. What's more, the option of working from home has made peripheral regions such as Eastern Switzerland more attractive. Being able to work remotely means people are willing to accept a longer commute. The COVID-19 crisis could represent an opportunity for the St. Gallen region due to its excellent public transportation and highway networks. 

What regional differences should be considered before buying a home of your own? 

From a certain level of income upward, tax definitely plays a role. It's worth using a location appeal calculator to compare different municipalities according to specific parameters such as taxation of imputed rental value, any capital gains tax, as well as tax factors and infrastructure.

And it's always important to look at your personal circumstances in order to assess your specific needs. If the plan is to eventually sell the owner-occupied home again at a later date, for example, then you need to consider its resale potential. 

What would your advice be to buyers in the St. Gallen region who're looking for a suitable location for a home of their own? 

People relocating to the region for the first time would be advised to work with a local broker. By doing so, they'll be added to a list of prospective buyers. If we know that one of our clients is looking to buy their own home in Eastern Switzerland, we'll also try to find them an affordable property. 

In terms of affordable residential property, how does the Canton of St. Gallen rate compared with Switzerland's other regions? 

Real estate prices in St. Gallen are certainly lower than in the likes of the Greater Zurich area or Lucerne. However, there are major regional differences. Residential property in the city is not affordable for all house buyers. This is partly because incomes are not rising at the same speed as prices. However, it's easier to make your dream of home ownership come true outside of the city – in the Toggenburg region or Rhine Valley, for example – thanks to lower prices and greater supply.

Isn't strong demand due to the low level of mortgage interest rates likely to push up real estate prices in the future? 

There is indeed evidence of an increase in prices. This development is likely to continue, given that the level of interest rates will remain very low for the next one to two years. We expect the Swiss National Bank to leave key interest rates unchanged at -0.75% until at least the end of 2022. 

"It's easier to make your dream of home ownership come true outside of the city." 

Ladina Rhyn, Head of the Mortgage and Lending Center for Eastern Switzerland

That means now is a good time to be making your dream of owning your own home a reality. 

Low interest rates are certainly very tempting as far as the purchase of residential property is concerned. Fact is, low mortgage interest rates win hands down compared with renting. However, the buyer's overall circumstances also need to be right. The choice of how to finance the purchase, with regard to available equity, reserves for subsequent renovation, and future financial security, is also a factor in any decision to buy. As a result, the bank never bases its calculations for property purchases on effective interest rates; instead we look at imputed affordability. We therefore assume an interest rate of 5%, meaning affordability is guaranteed even if interest rates rise. 

How do you think the real estate situation will develop in 2021? 

We anticipate that demand for residential property in the canton will remain high due to the current situation. In terms of the city of St. Gallen, we expect a further rise in prices for residential property. 

Are you looking to fulfill your dream of owning residential property?

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