If you’re looking to sell property in Switzerland, you would no doubt be concerned at all the talk of there being a real estate bubble in Switzerland.
While it is true that the property market in Switzerland is overvalued, there is no danger of a real estate bubble as yet. Still, you have every reason to be concerned. Properties in Zurich, Lucerne and Lake Geneva are extremely overpriced, for instance.
The Swiss property market has been pushed up by negative real estate rates, which has made many people to invest in property rather than save their money in banks. In fact, all major banks in Switzerland get thousands of loan applications for second homes on a daily basis.
Other things to have pushed the property prices in the country higher is the removal of the franc-euro exchange rate peg - which has led to a jump in home prices by 2%. Nobody would have complained about the rise in home prices, if not for the fact that they come at a time when there has been a serious fall in consumer prices across the country and a negative growth of the Swiss economy in recent years.
UBS, one of the biggest banks in the world came out with this report on the property market in Switzerland: “While lower rents push down returns on real estate investments, the overheated market for investment properties has spilled over into the home market given the scarcity of investment and the negative interest rate environment.”
Now, while there is no doubt that the property market is overvalued, one does not really have to fear a bubble as yet. That’s because for a bubble to develop, there has to be excessive lending by the banks and other financial institutions. We don’t see this happening in Switzerland, as the banks here are extremely conservative and exercise due diligence while handing out loans to consumers.
Still, the high property prices are unsustainable in the long run. A lot of foreigners who were planning to purchase apartments in Switzerland have been put off by how expensive properties are in the country, especially in Zurich and Lake Geneva. Those who were planning to buy ski chalets in the Swiss Alps have been put off for the same reason.
Another reason why the current high property prices are unsustainable is that in Switzerland, the supply exceeds the demand by quite a lot in the current scenario. Because of negative interest rates on bank deposits a lot of people are investing in second homes and a great deal of money has gone into new constructions. This has created a glut of new homes for sale in almost every Swiss city.
Another issue is one of affordability. Switzerland is one of the richest countries in the world. An average family in Switzerland can afford to buy an apartment worth CHF 734,000. However, the cost of an average apartment in Switzerland is close to CHF 800,000. This means apartments in Switzerland are unaffordable for most people. This creates a serious gap in the marketplace and it’s hard to think it can be sustained for long.
For example, apartments in Lake Geneva cost 9 times an average annual income, those in Geneva cost 14.6 times the average income and in Zurich, at 11.1 times average national income.
Clearly, this cannot be sustained for the long term, which is why we expect prices to come down sooner or later. 2016 could well be the year when there is a sharp correction in property prices in Switzerland. So, if you’re looking to sell property in Switzerland this year, the key is to time the purchase well, and get out of the property market before it takes a turn for the worse.