| Ramzi Chamat
The year 2024 has brought notable upheavals to the Swiss real estate landscape. The recent cuts in key rates by the Swiss National Bank (SNB) were intended to stimulate the economy. This strategy has had mixed effects: it has revived interest in fixed-rate mortgages, while leaving house prices in a more complex situation. This article explores in detail the current dynamics of the real estate and mortgage market in Switzerland, analyzing the implications of these rate cuts for the different players in the sector.
The year 2024 has seen significant developments in the Swiss real estate market, influenced by the Swiss National Bank's (SNB) decisions regarding key interest rates. While interest rate cuts have traditionally stimulated the economy and, by extension, the real estate market, the current situation presents interesting nuances. This article explores the effects of rate cuts on fixed-rate mortgages and real estate prices, examining the implications for various market players.
The SNB's decisions to cut key interest rates aimed to encourage economic activity in the context of a global economic slowdown. By lowering key interest rates, the SNB makes credit cheaper, which, in theory, should stimulate investment and consumer spending, including in the real estate sector. However, the results observed in the first half of 2024 reveal a more complex situation.
Data from the first half of 2024 show a 2.2% decrease in the sales prices of single-family homes in Switzerland, contrasting with a 4.5% increase in the second half of 2023. This price decrease is particularly pronounced in the French-speaking region of Switzerland (Suisse romande), where house prices fell by 4.0%. In contrast, in the German-speaking region of Switzerland (Suisse alémanique), the decline is more moderate, with a 1.3% decrease.
Several factors can explain this price decline. On the one hand, the reduction in key interest rates has indeed made credit more accessible, but it has also increased potential buyers' caution in the face of an uncertain economy. On the other hand, market saturation in certain regions and decreasing demand may also play a role.
Unlike single-family homes, apartment prices recorded a slight increase of 0.5% in the first half of 2024, following a 1.6% increase in the second half of 2023. This difference in trends between houses and apartments could be due to several factors, including urban densification and the growing preference for smaller, more affordable housing in urban areas.
Despite the SNB's two rate cuts in the first half of the year, Saron (Swiss Average Rate Overnight) mortgages were not the first choice for borrowers. On the contrary, demand for these mortgages fell sharply. This trend can be explained by the perceived volatility of Saron rates, prompting borrowers to favor the stability of fixed rates.
Short-term fixed-rate mortgages reached a record high, representing 15% of the distributed volume. Ten-year mortgages are particularly popular in the French-speaking region of Switzerland, while in the German-speaking region, mortgages with a duration of five to nine years were the most frequently concluded. This preference for fixed rates is explained by the security they offer in an uncertain economic environment.
The decline in the share of Saron mortgages and the increase in their margins cost banks significant market shares in terms of volume distributed. At the end of 2022, banks still represented 75% of the distributed volume, while in the first half of 2024, they represented just over half. Pension funds and insurance companies seized the opportunity and increased their market shares with attractive conditions, their combined share representing nearly 50% of the distributed volume in the first half of 2024, a new record.
In the French-speaking region of Switzerland, the significant decrease in house prices (-4.0%) contrasts with a slight decrease in apartment prices (-0.2%). This dynamic may reflect an oversupply of single-family homes relative to demand.
In the German-speaking region of Switzerland, the situation is slightly different, with a more moderate decline in house prices (-1.3%) and an increase in apartment prices (+0.6%). This region shows relative resilience, perhaps due to a stronger local economy or more stable demand for housing.
The future evolution of the Swiss real estate market will depend on several factors, including the SNB's decisions regarding interest rates, global economic trends, and specific market dynamics. Market players will need to remain flexible and ready to adapt their strategies based on changing conditions.
Diversification of Projects: Market players should consider diversifying their projects to include a range of housing types, including apartments, single-family homes, and affordable housing solutions.
Regional Market Analysis: An in-depth analysis of regional market conditions can help identify growth areas and underserved market segments.
Financial Partnerships: Establishing partnerships with pension funds and insurance companies can offer more favorable financing conditions and attract a broader customer base.
Innovation in Construction: Investing in innovative construction technologies and sustainable practices can reduce costs and increase the appeal of projects for environmentally conscious buyers.
Interest rate cuts in Switzerland have had varied effects on the real estate and mortgage markets. While they have stimulated demand for fixed-rate mortgages, they have not yet led to a significant increase in real estate prices. Real estate market players must navigate a complex landscape where opportunities and challenges coexist. By adopting flexible strategies and staying attuned to market trends, they can maximize opportunities while minimizing risks.
Ultimately, the ability of market players to adapt to changing conditions will determine their success during this period of economic transition. The coming months will be crucial to observe how market players respond to new dynamics and adjust their strategies accordingly.