Real estate market in Switzerland: A continued rise in prices despite a low risk of a bubble.

I. Introduction

The Swiss real estate market stands at a crossroads. While housing prices continue to climb, fears of a real estate bubble bursting appear to be subsiding. This trend, observed in the third quarter of 2024, highlights complex developments across different regions of the country, notably in Geneva and French-speaking Switzerland. This article explores the factors driving these trends and their implications for real estate market players.

II. A Persistent Increase in Housing Prices

According to data compiled by UBS, the prices of owned homes have continued to rise across Switzerland. This phenomenon is explained by several factors:

• Low construction activity: A slowdown in new housing construction has intensified pressure on the existing supply.

• Moderate demand for mortgages: While demand persists, it has not been strong enough to curb the rise in prices.

• Rising rents: With rental costs continuing to increase, homeownership is becoming a preferred option for many households.

III. The Drop in Interest Rates and Its Effects

One of the main factors contributing to the reduced risk of a real estate bubble is the Swiss National Bank’s (SNB) decision to lower its benchmark interest rate. This move has had several positive impacts:

• Reduction in costs for homeowners: Financing costs for real estate have decreased, alleviating household budgets.

• Stabilization of debt levels: With lower interest rates, borrowers are less reliant on expensive credit, reducing market vulnerability.

IV. Regional Imbalances to Watch

Despite the overall reduction in risks, regional imbalances persist:

• Geneva and French-speaking Switzerland: In Geneva, the balance between housing prices, incomes, and rents has improved. However, the canton of Vaud still shows signs of distortion, requiring closer attention.

• Graubünden and Alpine regions: Secondary homes in tourist areas continue to see their prices soar, exacerbating imbalances. These increases are particularly significant in Graubünden and some alpine areas in central Switzerland.

• German-speaking Switzerland: The imbalance between purchase prices and rents remains below the national average, though some signs of overheating are evident.

V. Conclusion

The Swiss real estate market is undergoing a period of mixed developments. On the one hand, the continuous rise in prices reflects a robust and attractive market. On the other hand, risks associated with a real estate bubble are diminishing, thanks to favorable monetary policies and improved household debt management. However, regional imbalances, particularly in tourist regions and parts of French-speaking Switzerland, warrant increased vigilance.

FAQ: Frequently Asked Questions About the Swiss Real Estate Market

1. Why do housing prices keep rising despite lower interest rates?
 

Demand continues to outpace supply, amplified by low construction activity and rising rents.

2. What are the main risks for the Swiss real estate market in 2024?
 

Regional imbalances, especially in tourist areas and some parts of French-speaking Switzerland, could lead to local overheating.

3. Is Geneva's real estate market still tight?
 

While prices remain high, the balance between prices, incomes, and rents has improved, making the market more stable.

4. Are secondary homes still a good investment?
 

Prices in alpine regions continue to rise, but this may limit future profitability due to market saturation.

Ramzi Chamat
OAKS GROUP SA