Real Estate Monitor: Property prices are rising despite inflation

Rising property prices despite higher interest rates

Persistent inflation and rising interest rates have so far had little impact on the Swiss real estate market. On the contrary, property prices continue to rise. Rents and residential property are becoming expensive. Read the Credit Suisse Real Estate Monitor Q3 to learn about the underlying causes of this development.

Sharply rising property prices despite higher interest rates

The real estate market is proving extremely resilient in the current economic climate of high inflation and rising interest rates. Nevertheless, it would be a mistake to believe that the significantly higher mortgage rates do not affect demand for residential property. After all, the interest costs for new mortgages have more than doubled since the beginning of the year. For example, the interest rate for five-year Fix mortgages rose from 1.23% to 2.69% between the beginning of the year and the end of August.

The higher interest rates have consequences: The number of property search subscriptions has fallen by 10% since the end of 2021, and the number of transactions in the first half of 2022 was 8% lower than in the previous year. However, because new construction activity continues to decline, a certain excess demand remains. For example, the prices for condominiums rose by a very high 7.3% in the second quarter of 2022 compared to the previous year. Prices for single family dwellings were up by as much as 8.8%. However, it seems likely that the price trend has reached its peak.

Growth in property prices is likely to have peaked

Growth in property prices is likely to have peaked

Source: Wüest Partner
Last data point: Q2/2022

Generational transfer gives hope for a slight easing on the residential property market.

Due to the shortage of available building land and a preference for constructing rental apartments, the number of owner-occupied homes being built in recent years is a sliver of what it was in the past. As a result, these properties are in short supply, which has constantly pushed up prices to new highs. But the strained situation on the housing market is likely to ease slightly in the longer term.

This is because, due to demographic aging, more and more houses and condominiums will be placed on the market or passed on to the younger generation. In 2019, the baby-boomer generation (i.e. those born between 1946 and 1964) owned more than 40% of Swiss owner-occupied properties. If the generation before the baby boomers is also taken into account, those over the age of 55 held a total of 57% of Swiss residential property. Based on these figures, it is estimated that around 690,000 homes will be put on the market by 2045.

Baby boomers own the majority of residential property

Those born between 1946 and 1964 (baby boomers) own the most residential property

Source: Swiss Federal Statistical Office, Credit Suisse
Last data point: 2019

Accelerated fall in the number of in vacant apartments

Owner-occupied property is not the only segment where new construction is too low. The same is true for rental apartments. In the past two years, a total of 4,800 fewer homes were approved for construction than between 2017 and 2019. Meanwhile, housing demand has increased. This is due to several factors: The strong economic recovery, combined with the ongoing pandemic management, is leading to more households being formed. In addition, increased immigration is driving higher demand for rental apartments. In the first seven months of the current year alone, 13,600 more people moved to Switzerland than in the previous year. The number of departures even decreased slightly in the same period. Finally, there is the (current) high net number of 55,000 vulnerable persons from Ukraine, who could play a more significant role in the housing market the longer they stay in Switzerland.

As a result of the decline in construction activity and the rise in demand, the decrease in the number of vacant apartments has accelerated. Overall, the vacancy rate has fallen from 1.54% to 1.31% in 2022. The decrease of 9,869 vacant apartments represents the largest decline since 1978. The decline is broad based and affects all segments, all apartment sizes, and a majority of the regions. As a result of the sharp drop in the number of vacancies, the much-debated oversupply of recent years on the rental apartment market remains an issue only in selected regions. And in the case of condominiums and single family dwellings, the supply shortage has worsened.

Real Estate Monitor Q3: Fewer vacant apartments in all segments

Fewer vacant apartments in all segments of the real estate market

Source: Swiss Federal Statistical Office, Credit Suisse
Last data point: 01.06.2022

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