Raiffeisen Switzerland chooses dramatic words in its real estate research published today! “Switzerland is heading inexorably towards a housing shortage,” he says. And: Tenants are facing tough times.” This is unusually obvious for a bank. Swiss “full throttle” against housing shortage.
What are the reasons for this pessimistic assessment? On the one hand, land prices are high. On the other hand, strict regulations and numerous objections put pressure on construction activity. Higher interest rates and inflation in construction further reduce incentives, according to the study. In addition, the population is increasingly demanding living space. This requires more flats than currently available on the market. In addition, the shortage of skilled workers and the Ukraine war will fuel strong immigration.
construction activity is reduced
A quick look into the past: Open positions increased sharply until two years ago. However, later on, construction activities slowed down and the vacancy rate began to decline. Since the start of the year, the vacancy rate across Switzerland has dropped from 1.54 percent to 1.31 percent. There is already a shortage of housing in many regional rental housing markets. Raiffeisen even writes about some housing shortages. The cantons of Geneva, Zurich and Zug had vacancy rates for flats below one percent. By 2024, the number should fall below 1 percent across Switzerland.
This is likely to increase rents in addition to house prices. “Anyone who moves will be facing significantly higher initial rents very soon,” says Raiffeisen chief economist Martin Neff (62). However, current rents are also likely to increase noticeably in the foreseeable future. In the first quarter of 2023, the housing loan reference interest rate is likely to increase by 0.25 points to 1.5 percent for the first time.
Up to 10 percent higher rents
The result: Rents based on the current reference interest rate can be increased by about three percent by the landlord. In addition, there will be legally permissible cost-of-living adjustments and overall cost increases. Some existing tenants are threatened with high rent increases of up to ten percent by 2024. It really makes a difference!
After all, there are now signs of easing in the hosting market, according to the study. The number of active search subscriptions for hosting on online portals fell nearly six percent from the previous quarter, and sellers seemed more willing to compromise. Requested prices for single-family homes fell slightly in the third quarter for the first time in a long time. This is a sign of weaker price dynamics. However, the price trend should continue to point upwards in the future. Because: “Hosting in Switzerland remains very scarce,” says Neff.
Low real estate funds
Darker clouds have gathered in the market for investment properties, according to Raiffeisen research. There’s a lot to be said for the net decline in investment property demand. Due to rising financing costs, many externally funded investments are now worthless. Institutional investors are also expected to be very cautious. Fixed income securities are still an alternative. This may put pressure on transaction prices and therefore on valuations in real estate portfolios. Exchange-traded real estate funds have already been largely fixed.