Prices for Swiss real estate are not yet shaking

According to the latest market data, home prices in Switzerland continue to rise slightly. Nevertheless, the situation for homeowners could soon become more uncomfortable.

So far, interest rates that have risen across the board have not dampened demand for home ownership. As the SWX IAZI Private Real Estate Price Index shows, the prices paid for homes on the market rose slightly by 0.7 percent in the second quarter of this year. Detached houses (+0.6 percent) and condominiums (+0.8 percent) contributed almost equally to this price trend.

Viewed over the past 12 months, the growth in transaction prices for residential property at 5.2 percent is still above the long-term average, as can be seen from a press release.

Stable price factors

According to Donato Scognamiglio, CEO of IAZI, the costs for the popular long-term fix mortgages have risen, which is dampening demand. However, short-term money market mortgages are still available at very attractive conditions. In addition, prospective buyers should already be able to cope with an interest rate level of around 5 percent due to the existing financing guidelines.

According to the calculations, the willingness to pay for apartment buildings has also increased. In the second quarter of 2022, price growth was 0.8 percent, and 6.4 percent on an annual basis. According to Scognamiglio, however, the risks are increasing for investment properties because rising interest rates have a direct impact on the valuation of such properties.

cooling in sight

The real estate market is likely to cool down in the medium term. Scognamiglio estimates that market participants are likely to be more cautious in the current environment, especially when it comes to planned transactions involving multi-family houses. After the interest rate decision by the Swiss National Bank, real estate is no longer without an alternative.

According to market observers, interest rates could also rise further. Homeowners would then have to tighten their belts because of expensive mortgages. The banks build in a safety buffer when granting mortgage loans. According to this, all debtors must be able to finance the mortgage interest up to a threshold of 5 percent in accordance with the “golden” rules of affordability in order to qualify for a home loan.

Tighten your belt soon

Nevertheless, the situation could become uncomfortable, especially for private homeowners, as well reported. On the one hand, there are no controls whatsoever on how the mortgage holders use their liquid funds after the mortgage has been granted. Because of a lack of discipline and fair-weather household budgets, homeowners can then get into a tight spot.

On the other hand, changing living conditions such as job loss or divorce can shift the affordability hurdles, which means that higher interest charges may no longer be bearable.

Building becomes more expensive

According to also on the cost side of the Swiss real estate market. Supply bottlenecks for building materials and high energy prices continue to make construction projects noticeably more expensive. The latter lead to high ancillary cost surcharges for tenants.

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