The subprime crisis has plunged the Swiss big banks into a deep crisis. However, the Swiss real estate market is barely affected by it. In particular, construction of second homes in top locations and tourist areas is booming. There is a vigorous political debate as to whether the current tight restrictions on the sale of property to foreign nationals should be eased.
The two leading big Swiss banks (UBS and Credit Suisse) were hit particularly hard by the US subprime crisis. Tens of billions of depreciation, changes in the top management of UBS, dismissals and dramatic customer withdrawals have since been the consequence. Never before has the Swiss financial industry been seized to such an extent by an international financial crisis.
However, the local real estate market has barely been affected by the crisis. Whether for residential or investment purposes, Swiss real estate enjoys an increasing popularity. The branch profits from Switzerland’s political and economic stability as a non-EU member as well as from its still low taxation. It is true that, in Switzerland, home ownership percentage is relatively low in international comparisons. Only about 35 per cent of homes are privately owned. That is the lowest proportion across all European countries. However, the home ownership ratio has continuously risen since 1970, which is mostly a result of the quick increase in owner-occupied flats (tower blocks).
More money for housing
The continuous growth of employment and of income has provided Swiss households with more money to spend on housing in recent years. But real estate has also gained importance as an investment tool.
The growing tax competition between cantons is contributing to that. The downpour of money from gold proceeds of the Swiss National Bank onto the cantons as well as the new government revenue distribution between the cantons have increased the financial leeway in many locations.
This new freedom of movement is used for tax offensives meant to improve the location quality and to attract natural and juristic persons.
It cannot be denied that the housing boom of recent years has lost some steam in 2008. Particularly in the agglomerations of the five largest cities, which account for more than a quarter of the building activity, the number of newly built homes has dropped significantly. Spread over the year, about 42,000 new homes will be built in Switzerland. It must be added that the demand for homes remains high, as demonstrated by the sharp drop in the vacancy rate, which is below one per cent. The demand for living space is closely linked to the demographic development. The Swiss population has crossed the threshold of 7.6 million during the course of this year.
For over a year, the population growth has accelerated considerably, particularly immigration from neighbouring EU states such as Germany. Except for Liechtenstein, no other neighbour reaches a similar dynamism.
Office spaces in demand
The rise in demand for office spaces continued in 2007. By comparison with the previous year, the expansion of office spaces grew only slightly in 2007. Approximately 500,000 square metres of new office spaces are estimated to enter the market. Measured against the existing surface area, that corresponds to an expansion of about 1.1 per cent. The building activity for office spaces was concentrated on the metropolitan areas of Zurich, Geneva/Lausanne, Basel and Berne, where 60 per cent of all new office spaces were created. The two financial centres Zurich and Geneva were the leaders, which reflects the banking boom of the past three years – before the subprime crisis. 2008 suggests a similar development as in the previous year. Current construction permits for office spaces amount to a project total of 5.2 billion Swiss francs. This is marginally higher than the construction permit data of 2006.
High but stable prices
In most areas in Switzerland, the average price range for real estate is high but stable. In city centres, their agglomerations and in key tourist areas, the prices for homes are highest. In the top tourist towns, a standard owner-occupied flat of 4.5 rooms will cost 1.3 million Swiss francs.
Not far behind in the ranking are the two large cities of Geneva and Zurich with their favoured neighbouring residential communities. In roughly 60 Swiss municipalities, prices are already over one million Swiss francs. According to Credit Suisse, the proportion of price level and income level is approaching the historic mean value.
The actual home price development in selected cities illustrates that the prices in other metropolises have risen more sharply. The cumulative price increase in Zurich, for example, lies well below that in other large cities. The price increase in London, New York or Sydney, for example, set in about five years earlier than in the Swiss metropolises.
Restrictions on foreign buyers
In particular, second and holiday homes are popular in Switzerland. Housing statistics place the number in this area at approximately 419,000 units. Almost one out of nine Swiss homes is used only temporarily. In November 2005, the government decided that foreign nationals should be able to buy Swiss property without a complicated permitting procedure. In the meantime, that intention has come up against considerable opposition. Parliament is requesting proof of a minimum period of residence in Switzerland in order for foreign nationals to acquire property. The Federal Council is currently revising the bill. A referendum on the suggested abolition of the so-called “Lex Koller” is almost inevitable. The Swiss restrictions on foreign property buyers will remain in place at least for the time being.
The author is co-owner of gribi group AG as well as CEO of gribi theurillat AG and, since 2008, has been director of the real estate network alaCasa.ch. He trained as a bank clerk at the then Schweizerische Kreditanstalt and, in 1992, he obtained a diploma as a qualified real estate escrow agent. Since 2002, Urs Gribi has been acting president of the Swiss Real Estate Association (SVIT).