Swiss real estate market in 2021: Demand for residential property higher than ever

COVID-19 has not slowed demand for residential property. Quite the opposite, in fact: People’s desire to own their own home reached a new high in the course of last year. But preferences are changing as a result of the coronavirus crisis and the increasing importance of working from home. The impact on the Swiss real estate market is explained in the 2021 Credit Suisse real estate study.

Demand for residential property unaffected by the pandemic

Demand for residential property remained high last year – despite the coronavirus crisis. This is illustrated by the 2021 Credit Suisse real estate study. One reason for this continued demand is likely to be the increased importance of people’s living situation due to the pandemic. In addition, mortgage interest costs for 2020 have fallen again by an average of CHF 238 per year for existing owners and are currently at a new low of CHF 4,684. For first-time buyers, this means: The effective affordability costs are low thanks to sustained very low mortgage rates, and the purchase of residential property is an attractive proposition from a financial perspective.

Effective affordability of residential property remains unproblematic

Affordability for an average household as % of income (assumptions: new build, 1% maintenance, 80% loan-to-value ratio, repayment to 2/3 within 15 years)
Source: Credit Suisse, Federal Housing Office, Swiss National Bank
Last data point: 2020

Imputed affordability makes it difficult to acquire residential property

For many Swiss people, acquiring residential property is becoming increasingly out of reach, because when granting mortgages, banks do not calculate the affordability based on the currently very low interest rates, but rather a rate of 5%. The aim of this approach is to ensure that homes remain affordable even at higher interest rates.

As a result of rising property prices, first-time buyers are therefore having to contribute more and more equity. The problem is particularly evident in the cantons of Zurich and Zug, the Lake Geneva region and around Basel and Lucerne. In these areas, properties are virtually unaffordable for middle-income households.

Working from home makes residential property outside the center more attractive

Due to high property prices in central locations, residential property buyers are often drawn to more rural areas. This trend is likely to intensify as workers will continue to work from home more and will therefore have to commute less. The experts from the real estate study assume that the search radius that households consider for potentially acquiring residential property will increase. Alpine regions should also benefit as flexible working makes holiday homes more usable.

Time savings are increasing the search radius for residential property

Residential perimeter with a workplace in the city of Zurich according to the proportion of time spent working from home, if 50% time saving is invested in commuting time (in brackets: car journey time at 07:00)
Source: Credit Suisse, HERE, Geostat
Last data point: 2020

Existing properties dominate the offering on the real estate market

Potential buyers are finding fewer and fewer new builds to choose from when looking for properties. The construction of owner-occupied residential property in this country continues to fall, and the negative interest rate environment continues to favor the construction of rental apartments. Nevertheless, there is a wider selection of properties available than might initially be expected; in recent years more existing properties have come onto the market. For single-family dwellings in particular, the range of properties is increasingly dominated by existing properties. An important reason for this is the aging of society: More and more baby boomers are moving out of their owner-occupied homes for age-related reasons.

Fewer residential new builds

Share of transactions involving new builds
Source: Real Estate Datapool, Credit Suisse
Last data point: Q4 2020

Prices for residential property remain up

Demand for residential property continues to exceed supply. This unexpectedly increased property prices sharply last year: Over the course of the year, prices of mid-standard condominiums rose by 5.1% and single-family dwellings by 5.5%.

In 2021, price growth is likely to flatten, as strict regulatory financing requirements limit further room for maneuver upward. Credit Suisse experts expect price growth of 3% for condominiums and 4% for single-family dwellings.

Real estate study shows robust demand for rental accommodation

Demand for rental accommodation is also remarkably stable during the COVID-19 pandemic – thanks to robust immigration last year. In addition, the number of people moving away has fallen sharply, as the Swiss labor market has proven to be particularly resilient compared with other countries. At the same time, the high barriers to entry to home ownership are bolstering demand for rental apartments.

But the coronavirus crisis has led experts to wonder: Will there be a permanent shift in the demand structure – away from the centers? While proximity to culture, leisure, and restaurant options has become less important in recent months, housing features such as a balcony, sufficient space to work from home, and proximity to recreational areas have come to the foreground. The real estate study discusses where rental accommodation will be in demand in the future and provides further interesting analyses of the rental housing market.

Are you interested in residential property and would you like to know what the affordability situation looks like in your desired region?

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