One might think that the rather gloomy outlook for the Swiss economy as a result of the corona pandemic is also casting dark clouds on the real estate market. After all, the State Secretariat for Economic Affairs (Seco) has predicted the sharpest decline in GDP in decades for 2020. But contrary to these expectations, the Swiss real estate market has so far come through the first half of the financial year relatively unscathed, according to the current price indices of IAZI. Although prices in the office and retail sectors have started to slide, the “SWX IAZI Private Real Estate Price Index” for private residential property (single-family homes and condominiums) shows an increase of 0.7% in the second quarter of 2020. This figure has hardly changed compared with the previous quarter (0.8%).
In the following video market commentary, Prof. Dr. Donato Sognamiglio, CEO of the IAZI, comments on his latest figures from the Swiss real estate market (German language only):
Uninterrupted growth in transaction prices for private residential property
According to the IAZI, single-family homes continue to record uninterrupted, positive price growth of 0.7% in the 2nd quarter (previous quarter: 0.8%). On an annual basis, the price increase of 3.3% was minimal (previous year: 3.1%). “The demand for private residential property has remained intact, and enough people are still realizing their dream of owning their own four walls,” says Donato Scognamiglio. “It cannot be ruled out that the lockdown has also led to many families developing new housing needs.” The “Swiss Real Estate Offer Index” for single-family homes also recorded a minimal increase of 1.2% in the second quarter (previous quarter: 1.1%). The “Swiss Real Estate Offer Index” serves as a leading indicator for future developments in the Swiss real estate market.
At 0.7% (previous quarter: 0.9%), the price trend for condominiums in the second quarter is identical to that for single-family homes. On an annual basis, the price increase of 3.4% (previous year: 3.3%) was only minimal. According to the “Swiss Real Estate Offer Index”, condominiums experienced a slight decline in price growth at -0.6%. However, the price trend on an annual basis remains unchanged at a high level of 2.8%.
Rising transaction prices also for multi-family houses compared to the previous year
In the 2nd quarter, the price growth for multi-family houses was slightly lower at -0.4% compared to the previous quarter (0.8%). On an annualized basis, price growth of 2.1% was reduced to a high level (previous year: 4.4%). “In my opinion, this slight decline in price growth means that the more restrictive rules for granting mortgages to finance investment properties have now led to the expected dampening of price growth,” says Donato Scognamiglio. There is no corona effect here yet. The decision-making processes in the real estate industry are rather “slow” or at least relatively slow. “In addition, residential investment properties are still a popular investment vehicle, which continues to support demand. The concrete gold has now lost some of its luster, but by no means its value,” says Donato Scognamiglio.
The performance of multi-family homes was 0.4% in Q2 (previous quarter: 1.6%). On an annualized basis, the performance is still an impressive 5.3% (previous year: 7.7%). The performance is the total return, which comprises the net cash flow return and the increase in value.
Slightly bleaker outlook for commercially used real estate
However, the prospects for commercially used properties are clouded, writes IAZI in its latest press release. Despite financial support from the federal government and a strong increase in consumer spending, the already weakened retail trade is facing a tough test. The growing importance of online trade and shopping tourism in the border regions has been challenging the Swiss retail trade for years. However, the Covid 19 crisis will further accelerate structural change. Business liquidations would lead to a further surplus of retail space on offer, which in turn would put pressure on market rents.
Recovery in Corona’s office space market slowed down
After the office space market showed signs of recovery at the beginning of the year, which would perhaps have meant the end of the prolonged dry spell, the deterioration in the economic outlook is likely to interrupt this stabilisation for the time being, writes IAZI. If labour market data continue to deteriorate, companies will postpone their expansion plans until better times, which will lead to less absorption of office space.