The real estate market in central Switzerland: Property prices are still rising

Focus on central Switzerland: News and views from the real estate market

Central Switzerland has a lot to offer. Its proximity to Zurich, attractive lakeside locations, and low taxes make the region a popular place to live. The Credit Suisse regional study provides insight into the property scene in central Switzerland.

Properties in lakeside locations command a premium price

Those who can afford it like to live near a lake. This is illustrated by the rising price of residential property around Lake Lucerne, Lake Zug, and Lake Zurich. The Zug region recorded the highest increase since 2000, with prices soaring by 138%. Regions such as March-Höfe (Schwyz) up 123%, Lucerne up 99%, Innerschwyz up 98%, and Nidwalden up 89%, have also seen significantly higher-than-average price rises.

Besides low mortgage rates, the reason for this sharp rise in prices is the high quality of the location: These regions offer low taxes, an attractive labor market, and good transport links. This led to significant annual population growth in central Switzerland between 2005 and 2017 of 1.1%. 

The property hotspots with the biggest price gains have been Zug and March-Höfe

The property hotspots with the biggest price gains have been Zug and March-Höfe

Residential property price trend (mid-range segment)

Index: Q1 2000 = 100, MS regions

Source: Wüest Partner, Credit Suisse

Property prices look set to keep on rising

The sharp rise in prices combined with more stringent borrowing requirements mean that many middle-income earners can no longer afford to buy a home in expensive lakeside locations. Property prices have even risen on the outskirts of these areas, albeit less dramatically.

Meanwhile, fewer homes are being built. If you compare the number of building permits for residential property issued in the last two years with ten years ago, the Canton of Zug has seen a fall of 66% in that period, followed by Lucerne, down 37%, and Schwyz, down 36%. Due to this decline in construction, relatively few vacant properties, and with mortgage rates remaining low, we can assume that further price rises are likely.

The housing market is seeing a decline in construction

Declining building activity

in number of dwellings by canton, 12-month averages

Source: Baublatt, Credit Suisse

No excess supply in the rental market

In contrast to residential property, the number of rental properties being built has increased significantly across the whole of Switzerland. This is because low interest rates make investment properties appealing to investors. As central Switzerland has so far not been the main focus of investors, there is currently little risk of supply exceeding demand.

However, it is apparent that, even in the cantons of Lucerne, Nidwalden, Obwalden, and Uri, the number of building permits issued for rental properties over the past two years has been far higher than the average for the previous ten years. In Zug, by contrast, the number of building permits has fallen. Overall, construction looks set to continue to rise in central Switzerland.

Housing market sees more rental properties being built

Increase in construction in the rental market

Building permits (new constructions) in number of dwellings, 12-month averages

Source: Baublatt, Credit Suisse

Demand is picking up in the rental market

In the meantime, demand for rental properties is increasing. This is due to the slight rise once more in immigration from abroad and internal migration from other cantons. As with residential property, central, easily accessible locations to the north and west of Lake Lucerne are experiencing significant population growth. Outlying areas around Uri, Nidwalden, Sarneraatal, and Entlebuch, on the other hand, are experiencing positive but below average growth.

Since immigration plummeted by 22% from 2015 to 2017 in the wake of the economic upturn in Europe, rents in central Switzerland have fallen slightly. As construction of rental units has risen in recent years, this trend may well continue for a while yet. However, the number of vacant properties is low compared with the rest of Switzerland, so the fall in rents is unlikely to be too pronounced. In Zug, in particular, which has the fewest vacant properties at 0.53 percent, accommodation is becoming scarce. Rents may well creep up again here.

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