Fewer Homes Are Being Built

Fewer and fewer condominiums and single-family dwellings have come onto the market in recent years – a trend that is expected to continue in 2018. This is already impacting on vacancy rates in some regions, particularly since the demand for residential property remains high due to the continued very low level of mortgage interest rates.

Fewer homes will be built in 2018 once again. In the Credit Suisse Real Estate Market study, experts expect an overall increase of 21,200 residential units. As in the previous year, the condominium segment is likely to be worst affected by the slowdown. An estimated 13,800 condominiums will be completed this year – a drop of 5.5 percent compared with the previous year. At 2 percent, however, the stock is still expanding at a respectable rate.

A fall of only 1.1 percent is expected in the case of single-family dwellings, meaning another 7,400 or so houses (0.5% of the total stock) are due to come onto the market. Nevertheless, this growth in the housing stock is not being seen in the urban centers or upmarket districts – other than in Geneva and Nyon – and is instead taking place in regions further away from the big population centers.


Net Additions and Increase in Residential Property

Net addition of residential units; RHS: increase as % of total stock

Source: Credit Suisse, Baublatt, Swiss Federal Statistical Office

Residential Property Market Has Bottomed Out

The fact that fewer condominiums are being built is partly due to more cautious project development, which is also reflected in smaller project sizes. In 2011, around 25 percent of all newly permitted condominium developments comprised more than 50 apartments – a figure that had fallen to just 14 percent by the end of 2017. There are now growing signs that project developers are slowly but surely abandoning their caution. This is likely to be reflected in an increase in building permits for residential property over the next 1-2 years.


Building Permits for Condominiums, by Size of Development

Project size in number of apartments, share in %

Source: Credit Suisse, Baublatt

Supply and Demand for Residential Property Are Close to Equilibrium

Supply and demand are close to equilibrium in the owner-occupied residential property market. Not only has construction fallen, but demand has also been curbed by the sharp increase in financing requirements. Residential property is no longer affordable for marginal households in urban areas in particular. That means no significant imbalances have developed in volume terms.

Vacancies therefore rose only slightly last year, with the vacancy rate for condominiums rising from 0.84 percent to 0.87 percent – equivalent to an additional 332 vacant condominiums. The rise is even smaller in the case of single-family dwellings: Here the vacancy rate grew from 0.40 percent to 0.41 percent – equivalent to an additional 220 vacant homes. In both segments the number of vacant properties therefore remains at a low, manageable level. Since demand is receiving an additional boost from the economic upswing, prices of owner-occupied homes are also rising again.


Vacancy Rates for Residential Property

LHS: as % of the corresponding stock; RHS: absolute change

Source: Swiss Federal Statistical Office, Credit Suisse

Only in the Alpine Region Are Vacancies at a High Level

Vacancy rates have actually fallen in quite a few regions. This is particularly true around Switzerland's major population magnets, such as the Lake Geneva area and Zurich. The mountain regions still show the highest level of vacancies in terms of owner-occupied property. There, the oversupply sparked by the second homes initiative has been reduced slightly, but not in all cases.


Regional Vacancy Rates for Residential Property

In % of stock of residential property

Source: Swiss Federal Statistical Office, Credit Suisse, Geostat

Vacancy Rates Likely to Remain Low

In view of the boost to demand from the economic uptrend, coupled with a further fall in construction activity, the economists at Credit Suisse in their latest real estate study expect a relative shortage of residential property. The trend is likely to be reflected in persistently low vacancy rates in 2018. Indeed a slight fall in the vacancy rate is quite possible. A distinctly positive price trend can therefore be expected for 2018.

Uncertainties remain, mainly due to the continued surplus production of rental apartments. One result is that a growing number of investors are turning to a combination of condominiums and rental apartments, particularly in the case of large projects. This allows them to keep the option open of switching from one segment to the other. Another factor is the large number of buy-to-let investments, where condominiums are purchased and rented out for investment purposes. Estimates suggest nearly a fifth of all newly built condominiums fall within this category. Their owners bear a high concentration risk, and could offload these apartments again in the event of a further rise in vacancy rates.


Owner-Occupied Housing: Development of Supply and Demand

Source: Credit Suisse, Swiss Federal Statistical Office, Baublatt