Housing boom over for property investors

The apartment market will stagnate, and in Zurich and Geneva, it will be hit Keystone

The housing market in Switzerland's key economic centres, Zurich and Geneva, as well top ski resorts will be hard hit by the global financial crisis.

The co-author of a new forecast told swissinfo property prices in these urban areas as well as mountain resorts such as St Moritz and Verbier could fall by up to 20 per cent.

Elsewhere, prices are expected to stagnate, said the report by BAK Basel Economics and the consultancy Fahrländer Partner.

However, Stefan Fahrländer told swissinfo on Monday that the situation was far less dramatic in Switzerland than in the United States and many other European countries.

“We’re seeing a strong drop in prices in France as well as Spain, Britain and Ireland,” the consultant said.

According to a report in the Financial Times, housing properties in these countries have more than trebled over the past 20 years, while they have actually dropped by about 10 per cent in Switzerland, Germany, Austria and Portugal.

There are two main reasons the Swiss market, in general, has been spared more turmoil.

The country has one of the lowest home ownership rates in the world with only 37 per cent of Swiss buying residential property, compared with 60-80 per cent in most other parts of Europe.

“Most Swiss buy a house or apartment to live in and not as an investment,” Fahrländer said.

Financing

He added that Swiss banks refused to follow the lead of financial institutions in other countries like the US, where buyers were offered 100 per cent financing. Mortgages were often granted on the belief that prices would continue to rise.

A property bubble of sorts is threatening to burst in the greater Zurich and Geneva regions and in the country’s international ski resorts though. Fahrländer says prices in these places have shot up between 60 and 100 per cent since the beginning of the decade.

A strong Swiss job market, particularly in and around the two cities, led to large inflows of foreign staff mainly from the European Union who needed a roof over their heads, and were buoyed into buying by a strong euro.

The strongest rise in prices in the Swiss Alps has been seen in Verbier and St Moritz, where the boom in new holiday homes and apartments has priced many locals out of the market, and has been harshly criticised.

“It’s difficult to say what will happen in these resorts, because what is happening in the markets there is not very rational,” Fahrländer said, explaining that much of the demand has been from Britain, France as well as Switzerland itself.

The study predicted that many potential house buyers would now wait because of uncertainty about the economy, but the Swiss market would remain attractive in the long term.

Fahrländer said he did not expect to see a problem on the supply side in Switzerland as there was in the US.

“There is more supply there because many people have had to drop the keys to their houses in the letterbox of the banks.”

swissinfo, Dale Bechtel

Property market

The Swiss property market has recovered from the collapse of the early to mid 1990s that cost banks SFr42 billion ($37.6 billion).

Construction of new housing reached a 10-year high of 47,000 homes in 2005 and 42,000 in 2006. By the end of this year, some 42,000 new homes are expected to be built.

The demand for new housing has matched supply, with the number of empty properties rising only slightly since 1998 to 1.06% in 2006.

But Switzerland is not a country of homeowners, with the rate of ownership rising from just 31% in 1990 to around 37% at present.

In international comparison, the 34.6% Swiss home ownership rate in 2000 compared with 45% in Germany, 54% in France, 69% in Britain and the US, and 81% in Spain.