| RAMZI CHAMAT | OAKS GROUP SA
In the context of continuously rising real estate prices, this article explores the trends, factors, and strategies needed to navigate this real estate "supercycle." Drawing on the latest analyses from RealAdvisor and economists' studies, it sheds light on the challenges of housing accessibility and potential solutions for Swiss investors. This article serves as a guide to understanding this evolving market and making informed decisions in a complex real estate environment.
The global real estate market is currently experiencing an exceptional phase, marked by a continuous rise in prices that appears unstoppable, despite major economic crises. Since the 1960s, residential property prices have been on a steady upward trend, with current indicators suggesting that this "supercycle" could persist for several more decades. This article explores the causes of this phenomenon, recent figures from the Swiss real estate market, and the challenges and opportunities for investors within this context.
The rise in residential property prices in industrialized nations dates back to the 1960s. Prior to this period, real estate prices had remained stable for nearly a century. A study of fourteen industrialized countries shows that from 1870 to 1960, real prices were on average unchanged. However, a strong upward trend began in the 1960s: today, prices in major global cities are up to three times higher in real terms compared to the 1970s.
In Switzerland, this increase has been particularly pronounced. Since 2000, real estate prices have jumped by 94%, according to data from RealAdvisor. By comparison, the average increase across 26 industrialized countries during the same period was 135%, representing an annual growth rate of 4.5% despite crises such as the 2008 financial crash and the 2020 Covid-19 pandemic. For instance, Swiss apartment prices rose by 1.1% in the third quarter of 2024, according to RealAdvisor’s real estate barometer, continuing a steady upward trend since the start of the year.
One key driver of rising prices is the drop in interest rates. After a period of moderate increases, central banks in the U.S., Switzerland, and the Eurozone recently lowered their benchmark rates, making property loans more accessible. Lower rates reduce mortgage payments, allowing more households to access homeownership. In Switzerland, mortgage rates are currently below 2%, a historically low level that encourages real estate purchases and places upward pressure on prices.
Gentrification, where formerly lower-income neighborhoods become progressively more expensive, is also a major factor. Cities that experienced an exodus to the suburbs in the 1970s are regaining attractiveness thanks to growth in the services, technology, and finance sectors. Cities like Zurich, Geneva, and Lausanne see their central neighborhoods increasingly sought by higher-income residents, driving up prices and gradually excluding middle- and lower-income households.
According to economist Edward Glaeser, excessive regulation on construction in major cities contributes to soaring prices. Glaeser explains that by encouraging new housing construction, cities could meet rising demand and reduce price pressure. However, current regulations and resident opposition delay construction projects, limiting housing supply.
In Switzerland, RealAdvisor’s real estate barometer for the third quarter of 2024 shows a 1.1% price increase, marking the third consecutive quarter of growth. This follows a 0.6% increase in the second quarter and a 0.4% increase in the first quarter, for a total year-to-date rise of 2.1%. With average apartment prices reaching CHF 9,000/m² in Zurich and CHF 12,000/m² in Geneva, Switzerland ranks among Europe’s most expensive real estate markets.
With Swiss bonds offering low yields, many investors are turning to real estate. Pension funds and insurance companies, seeking secure and profitable investments, are investing heavily in real estate. In 2023, more than 60% of pension funds in Switzerland increased their real estate investments, according to a survey by the Swiss Federal Statistical Office. This influx of investments further pressures prices and reduces the availability of affordable properties.
The increase in real estate prices has made housing access increasingly difficult for lower-income households. In Switzerland, the price-to-income ratio for real estate has reached a critical level: real estate prices are now 10 to 12 times higher than the median annual household income, compared to around six times in the 1980s. This trend is particularly pronounced in major cities, where affordable housing is increasingly scarce.
The "filtering" process, as described by Glaeser, illustrates how new housing can indirectly benefit low-income households. By building housing for high-income populations, older, more affordable housing becomes available to middle-income households. But resistance to new construction blocks this filtering process, allowing gentrification to take hold instead.
In a context of continuous growth, investors must proceed cautiously. Here are a few investment strategies adapted to current market conditions:
The suburbs of major cities, less affected by gentrification, often offer more affordable prices and growth potential. Cities like Winterthur, Montreux, or Nyon still present growth opportunities.
Rental properties in cities are increasingly in demand. In Switzerland, where the homeownership rate is one of the lowest in Europe (around 37%), investing in rentals can provide a stable income source.
The Covid-19 crisis has sparked increased interest in outdoor spaces and rural residences. Investing in properties with gardens or in suburban areas could become a profitable long-term strategy.
The real estate market today is supported by powerful economic and social trends. Despite times of crisis, the price supercycle appears far from ending. The combination of rising demand, historically low interest rates, and pressure on new construction keeps prices high.
In Switzerland, where supply remains limited, high demand could drive another decade of price increases. For investors, the key lies in a sound understanding of the market and an investment strategy aligned with current trends. The real estate supercycle could represent a unique opportunity for those who understand how to leverage it.
This detailed article provides a comprehensive and data-driven view of the current market, including the challenges of gentrification, limited new construction, and investment strategies suited to this evolving context.
