Why are real estate investors building so little despite the housing shortage?

The number of rental apartments offered in Swiss settlements cannot meet the demand. In three years, more than 50,000 apartments will be missing. This raises prices and makes rental flats more attractive. However, investors are building significantly less right now than they were just a few years ago. How can it be? Blick spoke to experts about the reasons.

On the one hand, landlords have profits: Due to rising rents, they are often accused of making exorbitant returns at the expense of tenants. But Donato Scognamiglio, 52, president of real estate consulting firm Iazi, counters: “We analyze more than 10,000 apartments and there are net returns that average just over three percent in rental income.” Added value increases. However, after strong increases in recent years, these are likely to be significantly lower in the future.

“Doesn’t Keep Accounts for Investors”

Prior to the return in interest rates, investors could borrow money from the bank at an interest rate of one percent. After the Swiss National Bank raised interest rates, a ten-year fixed-rate mortgage now has to quickly pay three percent interest.

Scognamiglio calculates: for six new flats with rental income of 150,000 francs, previously 30,000 francs was enough to cover the loan. In the new world of interest, 90,000 francs have to be transferred. “This interest rate change is the main reason why there is so much less construction right now. For investors, the calculation no longer works unless they take higher risks,” Scognamiglio says. At the same time, higher interest rates make alternative investments such as mortgage bonds more attractive.

Free apartments around, but…

Another reason is the large number of newcomers to Switzerland, as Markus Meier (61), director of the Swiss homeowners association, puts it: “The real estate market could not have expected such a strong rise. With population growth, the situation is likely to worsen over the next few years.” In 2022, the Swiss population increased by 102,000 people.

The tenants’ association therefore speaks of a housing shortage and calls for action against rising rents. “I prefer to talk about the housing shortage. After all, there are still lots of vacant flats in the slums or in the countryside,” says Meier. At the end of 2022, 1.31 percent of apartments in the country were empty – but often not where people want to live.

Cities are declining

Many want to live in cities such as Zurich, Geneva, Winterthur ZH, Basel or Bern. However, there are almost no apartments here. Cities should be built higher. “However, this consolidation is severely hampered by current case law,” says Ursina Kubli, 43, senior real estate specialist at Zürcher Kantonalbank. Objections often hinder projects for many years or completely. “One problem, for example, is high noise regulations that hinder a large number of projects. Noise protection regulations urgently need to be relaxed to enable necessary living spaces in cities as well,” says Kubli.

High land prices, construction costs and sometimes hard-to-find materials also make real estate projects less attractive.

For tenants, the housing market relaxation will likely come with a bitter pill: a rising benchmark interest rate and thus higher rents will increase construction activity and reduce scarcity.

Source :Blick