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Ursina Kubli (43) answers questions in her interview with “Cash” magazine. Zürcher Kantonalbank’s head of real estate analysis classifies the real estate market and offers a perspective on the future.
What is often overlooked when discussing the “real estate market” topic?
Ursina Kubli: Often the distinction is not that clear.
What do you mean by this?
When you look at price developments, three-month losses are normal. There is never a straight line in index calculation. However, these disruptions are heavily addressed and often not contextualised. Although regional development is of great importance, people often talk about the “real estate market” in general terms. We also hear that the reason why families cannot own their own homes is because of imputed interest rates.
The imputed interest rate – 5 percent – is used in lending to calculate affordability in order to guarantee financing from the customer even in future phases of higher interest rates…
Yes definitely. It was established to protect buyers. It was not introduced to disadvantage anyone. If the benchmark interest rate falls, more people would be able to access the housing market, but greater debt risk would arise and prices would likely be even higher. The main problem of recent years, which is that housing demand far exceeds supply, will still remain unresolved.
Which rule always applies in the real estate market?
“Location, location, location” always applies to real estate demand. But despite this real estate wisdom, it’s important to differentiate. What is demanded for a residential property is often not a location advantage for office or commercial properties. For the latter, good transport links are an important criterion. However, this is often accompanied by noise, which negatively affects the quality of the location of housing.
Mortgage interest rates have risen sharply and the SNB last increased its key interest rate in June. Is there a misunderstanding about the current interest rate?
Relatively speaking, we’ve seen a huge movement. After getting used to the negative interest rate environment over the last few years, the post-pandemic rise in interest rates surprised many people. Fundamentally, the negative or zero interest rate situation was not healthy, but today’s market environment is normal.
A homeowner is about to extend his mortgage. Saron or 10-year fixed-rate mortgage?
There is no general answer to this. To do this, you need various information about the person’s background, such as: How old is the person? Does he want to sell his property in the next few years? What is the budget and associated risk profile? Comprehensive advice is required.
Another question: Have 10-year fixed-rate mortgages peaked?
We assume this. You can already see sideways movement. However, there is currently no sign that these will decline quickly.
Isn’t it worth waiting for interest rates to drop?
A return to the phase of negative interest rates seems unlikely. The term “turning point” fits this context.
But when it comes to Saron, you have to guess what the Swiss National Bank (SNB) will do…
Yes. However, monetary policy measures against inflation are working. We assume the SNB will raise key interest rates by only 25 basis points again. Whether the SNB cuts interest rates again depends on the economic environment and the monetary policy of the Fed and ECB.
How painful is this interest rate development for homeowners?
It’s painful because mortgages used to be very cheap and now they’re getting expensive again. What has actually changed since the 1990s, when interest rates were much higher, is the amount one must pay to own a home. The absolute debt someone carries today is higher than it was 30 years ago. For example, the Zurich homeownership index has more than doubled since the 1990s. Average income has not increased to this extent.
Developments in interest rates are vital for the real estate market. How have supply and demand in the housing market developed in recent months?
When you look at real estate portals, you notice a slightly wider selection. However, there was no increase in housing sales. It actually takes longer to sell a property. There are still only a few houses for sale in particularly sought-after communities; There is demand. As a result, the domestic market is still stable.
The good economic situation also supports demand in Switzerland. What is the role of the increase in the resident population?
Labor migration primarily has an impact on the rental housing market. However, the problem in the rental housing market also indirectly affects the home ownership market. The unsuccessful search for a suitable rental also increases the incentive to purchase, depending on the initial situation.
The takeover of Credit Suisse by UBS is becoming an issue in the city of Zurich. Is there a risk of a significant increase in housing supply in Zurich due to high-paid CS bosses moving in?
It’s too early to judge this. Those interested in properties in the higher price segment also work in various sectors, such as ICT or medical technology, as well as the banking sector.
Demand remains high, supply is scarce: the buzzword “housing shortage” is being thrown around in Switzerland. Is it a black painting or a real problem?
So far there has been a distribution problem throughout Switzerland. There are indeed vacancies, but if they are far from the centres, for example in the canton of Jura, it is of little use. Proximity to the labor market remains important. And if you look ahead: For the housing market to work, supply and demand must have the same dynamics. This is not the case right now. The population is increasing rapidly and construction activities are decreasing. The number of vacant apartments will continue to decrease every year.
Why aren’t there more buildings?
Construction activity declined beforehand, not because of rising interest rates. The peak was reached in construction permits in 2019. Even in times of negative interest rates and the associated investment crisis, when everyone was hungry for real estate, activity dropped. On the one hand, this development is due to the fact that vacancy rates were high at that time – construction was being carried out in some regions to meet demand – but on the other hand, densification was not progressing to the extent it should.
What has changed in terms of regulation?
The revision aims to target spatial planning for growth in densely populated areas. Because of this problem, called the NIMBY problem, resistance is greater in these mostly urban areas. Zoning legislation should have been relaxed. But this was not the case. On the contrary, the Federal Court’s decision on noise protection has been in force since 2016. Since then, the noise protection law had to be applied at a 1:1 ratio; Previously, the noise issue was approached with a more pragmatic approach, with the so-called ventilation application. Stricter enforcement of noise regulations has derailed many residential construction projects.
Despite the increase in interest rates in the second quarter, house prices increased again. What’s next?
A horizontal trend emerges. Prices will stabilize. Compared to the corona explosion, excess demand has normalized. Back then, all it took to sell a house was a weekend viewing appointment. This is no longer the case, individual viewings are possible again.
This is normalization…
Yes, that’s healthy too. The market has been overheated before; and it was frustrating for all callers. Now you have time again to think ahead about the property you want to buy.
The price level remains high: Who can really afford homeownership?
Owning a home is a luxury. You need not only the required income, but also the relevant assets. Prices have risen so sharply in the past – by an average of 50,000 francs a year – that savings efforts have not been enough to realize the dream of owning your own home. According to research conducted by Zürcher Kantonalbank in 2019, only 10 percent of tenants had the income and assets to realize the dream of having their own four walls.
Is this why a “mom and dad bank” is often needed?
Upfront inheritance for home ownership is definitely something discussed and made possible within the family.
Another issue: What kind of rental development should households expect?
Rental trends will continue to trend upward. Additional costs will continue to increase due to increasing electricity costs, and the reference interest rate is likely to increase again towards the end of the year. At the same time, the supply of rental apartments is decreasing. Specifically, we expect rents in Switzerland to increase by 4.0 percent; In the canton of Zurich, the increase is likely to be even higher, at 4.5 percent.
Vacant rental apartments are decreasing, especially in cities. Is this a long-term trend?
Yes definitely. The fewer apartments there are for rent, the less likely people are to change their rental apartments. This widens the gap between those looking for accommodation and existing tenants. Therefore, the problem of housing shortage will become more evident in the coming years. There aren’t enough new apartments coming to the market.
With the rise of home offices, wouldn’t it be a relief to reduce office space and repurpose it?
At least it’s something. However, office spaces are often located in noisy places where transformation is not possible. In some cases, only a new building may make sense for architectural reasons, for example because water, electricity or sewer pipes are not suitable or the light is not sufficient for residential purposes. Additionally, the vacancy rate for office space has also decreased, especially in central locations. Decentralized locations are more likely to have large amounts of vacant office space.
Ursina Kubli heads real estate research at Zürcher Kantonalbank. A qualified economist, she has many years of experience in economics and real estate analysis.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
