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Claudio Saputelli, what is often misunderstood when it comes to hosting?
Although home ownership is largely a consumer good and part of life planning, it is often seen as an investment good. You have to invest and write.
What are other misconceptions?
There is an opinion that good places are safe. For example, there is a widespread view in the Pfannenstiel area that home ownership can never be fixed. not so. Even very good locations have a certain price volatility. Corrections are usually stronger as there is a tendency to exaggerate upwards. Also, many people think that there is always an opportunity to find the right timing when it comes to buying and selling a home.
Isn’t your own home a safe investment with great return potential?
It’s an illusion. You can have good times when interest rates are falling and immigration is strong, but the reverse can also happen, as Switzerland experienced for itself in the early 1990s. Real estate prices are not increasing.
To what extent are there examples from the recent past?
The canton of Ticino is a good example. A lot has been built there in recent years and prices have been corrected. The belief of the masses in the safe return of real estate is the driving factor behind every bubble. You saw this in the US in the 2008 financial crisis.
Is there a risk for Switzerland in this regard?
There is no need to be afraid right now: demand is very high and supply is low. Zug, for example, is extremely expensive and Zugers have been leaving the canton for years because they can’t afford anything there. However, this is more than compensated by international migration flows. The same goes for Geneva, where locals head to the Lower Valais.
How has supply and demand in the Swiss residential real estate market evolved over the past few months, given rising interest rates?
We’re still below the long-term average when it comes to interest rates. But it still starts to hurt. Despite this, demand continues to outpace supply, which supports rents and house prices. Only inequality has decreased.
Why is demand still so strong?
Demand is mainly driven by population growth. However, in recent years, new households have also been formed through divorce or liquidation of communal flats. And there are more and more single households. Over 50 percent in the city of Zurich.
This development was predictable. Why is there so little construction in Switzerland despite high demand?
One reason was that until a few years ago the vacancy rate was increasing. At that time there was talk of “ghost settlements” and now we are experiencing a “housing shortage”.
pessimism?
Our satisfaction range in the real estate market is very narrow. Things are heating up, although there is some vacant space and not enough construction. Seen soberly, everything is simply too cyclical. Construction activities will pick up in the next two to three years.
Why is the construction industry so stagnant?
In western Switzerland, planning applications take an average of 350 days to be approved. With objections, everything is further postponed. The Federal Supreme Court’s noise protection order and Spatial Planning Act don’t make things easy either. Until a few years ago, such delays were welcome as they offset the vacancy rate.
What role do rising construction costs play?
Rising construction costs consume a construction or development company’s margins unless they can be offset by lower construction land prices or higher selling and rental prices. Higher construction costs therefore depreciate the project value. Those who do not want to accept this postpone the construction.
But relaxation comes long time?
There is no relief in sight. On the contrary, the shortage will increase. We still have 60,000 flats vacant as buffers – although most of them are in the wrong place. From 2024, construction activities may increase again.
Still can’t do anything with the buzzword “housing shortage”?
The real estate market sets the stage for politicians, journalists and analysts. No one would be interested if it was just said “excessive demand for housing”. A good example of the power of language. It is a pity that a certain objectivity is lost in the process.
Who can afford the still high prices?
Incomes certainly haven’t kept up with house prices. But where does the demand come from if real estate prices are so expensive? In general, there are still enough people to have their own home, otherwise we wouldn’t have such a dried-up market. Money is also available through “Mami-und-Daddy-Bank”, inheritance or double earnings.
But young families can no longer afford their own homes…
Do you really want young families to take so many risks? When it comes to divorce, owning your own home is often the biggest loss. And owning your own home is not a fundamental right. There is also a functioning rental market in Switzerland as a viable alternative.
Do you eliminate the dangers of buying a home with this personal image?
How much money a house absorbs is always underestimated.
How will Swiss residential real estate prices develop in the coming months?
With an annual price increase of 5 percent, the residences will return to 1 percent after the ‘corona party’. A cooling will take place.
What needs to happen for major fixes to happen?
Population, and with it demand, would have to collapse. Many border cantons are also living from immigration related to the real estate market. If this collapses, gaps will increase and prices will correct. If the immigration balance drops sharply, we will quickly have problems in the Swiss real estate market.
Rising interest rates don’t matter?
So far only limited. The landlord must be able to afford current interest rates. One calculates it with an imputed interest rate of about 5 percent.
Do you no longer expect a sharp rise in key interest rates?
We expect the Swiss National Bank (SNB) to raise interest rates from 1.5 percent to 1.75 percent in June. Things should calm down after that. Current interest rate levels shouldn’t be a problem for homeowners. However, demand for housing has weakened in recent months. This is because buying is currently about 30 percent more expensive than renting. Until recently, purchasing was cheaper in a few years.
So, will the horizontal course in fixed-rate housing loans continue?
Yes, they are at the top. Contrary to our forecast of a slight increase in ten-year federal bond yields throughout the year, we expect long-term mortgage rates to fall between 2.5 and 3.1 percent. Saron’s interest rate advantage over fixed-rate mortgages is further diminished, as that price rises to 2.5 to 2.9 percent at the end of June.
But will Saron continue to be more interesting in terms of interest savings in the long run?
Once inflation is under control, interest rates are expected to come back to support the economy. It takes a maximum of two years for Saron to dig deeper. If you take a ten-year fixed-rate mortgage now, you have to pay the corresponding interest rate for the entire period. It’s hard to beat Saron in the long run. Because with a ten-year flat-rate mortgage, you always pay a risk premium.
Should everyone hop on Saron?
No, you can’t say that. It’s like hiking in the mountains: if you’re afraid of heights, you need better protection. Anyone who can’t stand Saron’s sudden movements due to his very high debt load should opt for long-term fixed rate mortgages. This offers planning security. In addition, the diversification of maturities also reduces the interest rate risk.
What is the biggest trend in the domestic market that you should keep on your radar?
This is sustainability. If every house tomorrow had an energy label on its door, the houses marked in red would receive a discount immediately. The bidder has to give the discount because the buyer has to retrofit and there is a risk of redevelopment. This development is happening slowly now.
Does every prospective buyer have to consider this issue in detail?
Definitely. If I were to buy a property today, I would immediately filter for oil and gas heating systems when searching. I don’t even look at those houses. If a buyer is still willing to make this concession, he must claim the discount. And every owner should switch to sustainability as soon as possible.
Free rental apartments are also becoming scarce, especially in cities. Is this a long-term trend?
Urbanization is a megatrend that will last for decades. The great migration from rural to urban continues despite Corona.
What rent increase should households expect?
The first increase in the benchmark interest rate will come in June. The latter will follow at the end of the year. Rents will therefore increase by an average of 2.5 percent in 2023. A cumulative 10 percent increase by the end of 2025 is realistic.
How long can the increase in rental costs be managed for household budgets? Where is the pain threshold?
In general, tenant households have very limited household budgets, so landlords will be cautious when adjusting rents – especially in areas with high vacancy rates. Once the pain threshold is reached, alternatives are quickly sought: move to smaller flats, move to cheaper locations or merge houses. This is an advantage of renting flats over owning a house.
Claudio Saputelli is Chief Investment Officer of UBS Global Real Estate. He has been with the big bank since 2007 and is initiator and responsible for the UBS Swiss Real Estate Bubble Index and other regularly published real estate research. As a real estate professional, Claudio Saputelli is a member of various expert committees and working groups. Claudio Saputelli studied economics at the University of Zurich and movement science and sports at ETH Zurich. Prior to that, he worked for Zurich Financial Services as a business IT specialist and software developer for several years.
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.
