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The key interest rate of the Swiss National Bank (SNB) was -0.75% a year ago. The key interest rate is now 1.5 percent, after successive increases in recent months.
These increases are mainly aimed at fighting inflation. But it also has ramifications for the real estate market. Banks use primary rates as a guide to determine mortgage rates—the rates at which they lend the funds needed to purchase a property. Although mortgage loan interest rates have fallen slightly since peaking in 2022, they are still at levels not seen since 2011.
No decrease in property prices
Normally, rising mortgage interest rates cause prices in the real estate market to fall. But in Switzerland the imbalance between supply and demand is so great that the effect is hardly noticeable. “So far we haven’t noticed any drop in property prices,” says Raiffeisen economist Michel Fleury.
In addition, rising interest rates make housing loans more expensive. So the money is still available, but loans are given at higher interest rates: “Mortgage loans are about twice as expensive today as they were a year ago, further driving real estate purchases that were already very expensive because supply is far below demand.” , explains Fleury.
Despite the interest rate hike in March, Fleury estimates that “fixed interest rates of about 3 percent, already too high for a ten-year mortgage, will remain stable or increase slightly.” However, as with Saron mortgages that follow money market prices, the cost of money is likely to continue to rise.
Attractive return real estate
However, investing in yield-oriented real estate remains popular. In other words, in the house that you do not own, that you rent. To compensate for the increase in interest rates, the landlord can increase rents at this time. “Tenant law requires that rents follow the evolution of mortgage interest rates,” says Fleury. However, if mortgage interest rates drop, landlords must also cut rent.
The expected rent increases should happen next summer: “The setting of the benchmark interest rate, which determines rent changes, has been delayed for technical reasons,” says Fleury.
Buy in the city or in the country?
The question is where to buy such a property. Property prices are generally lower in remote areas. But Fleury limits: “It depends on a few factors and the risk you’re willing to take. It should be noted that the rise in interest rates as a result of national monetary policy spared no region and property prices in all regions remained virtually unresponsive.”
True, according to him, an apartment in the city center is more expensive. On the other hand, the probability of being vacant is also very low: “If you buy an apartment in a big city, the yield is actually lower than in more rural areas. However, demand is significantly lower in the so-called urban peripheries, while the risk of not finding tenants in the city is almost zero.»
Caution: The law requires more equity when purchasing investment property than property for personal use. In the case of the latter, equity should make up 20 percent of the purchase price. When it comes to an investment property, you need at least 25 percent equity. Also these funds must be “hard”, that is, not come from the second column.
Requires a lot of equality and work
Investing in real estate is still a good idea in terms of value and return, but there are a few things to consider.
“For one, you need a lot of money,” says Fleury. Even if you want to buy a property in the surrounding area, you probably need between 125,000 and 175,000 francs of equity for a 100 square meter flat. Fleury warns: “Anyone who invests in real estate often makes it a central part of their wealth. However, it is well known that the best investments are those that are diversified.”
Also, renting a property is like a part-time job: “The owner is responsible for administration and maintenance. For laypersons, these tasks can consume a lot of time and energy. Of course, you can turn everything over to a property management company, but that’s usually pretty expensive.”
(FR by Julien Crevoisier. DE revision: Jean-Claude Raemy. Text created in collaboration with LargeNetwork)
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.
