EDITORIAL: Over the past ten years, investments in real estate have put in a very robust and attractive performance compared with other asset classes. But it wasn’t until the international financial markets suffered their major corrections that real estate was really rediscovered as an investment vehicle. Since then it has won back its place alongside equities and bonds in the portfolios of many of those private and institutional investors who had ditched real estate in the wake of the property crisis of the early 1990s.

Real estate investment has received a considerable boost not only from short-term cyclical forces, but also from long-term trends. These have included rising demand among institutional and private investors for greater income and value stability, as well as much more transparent markets.

In recent months, however, some cyclical factors – such as interest rates – have been starting to turn the other way, and people are already beginning to express concerns about a fresh property crash in Switzerland. Memories of the 1990s collapse are still painful. This study clearly shows, however, that today’s conditions are very different indeed to the ones that prevailed fifteen years ago.

The current economic environment is poles apart from the pre-crash scene of 1990/91. As well as the obvious tendencies towards overheating, i. e. high inflation and economic growth rates and low unemployment, the late eighties also saw a breathtaking rise in short-term interest rates. By contrast, we only expect economic growth of 1.6%, unemployment of just under 4% and barely any inflation this year.

Short-term interest rates may rise slightly but will remain low by historical comparison. There is no sign today that the Swiss economy is in danger of overheating. Another major consideration is the fact that Swiss real estate markets have become much more transparent in recent years. This fifth edition of our real estate study aims to point up the latest facts and trends relating to the Swiss real estate market and to deepen our knowledge of market mechanisms even further.

As usual, you can find facts and trends relating to Switzerland’s 26 cantonal real estate markets in the regional section of our real estate study, which is published online at www.credit-suisse.com/research

The Credit Suisse Real Estate Research team hopes you enjoy reading this study.

Residential property

Demand
Factors that influence demand for residential property can be divided into three categories: structural factors, cyclical /economic factors and opportunity factors.

Demographic changes are the most important drivers of structural demand for residential property, though population growth is obviously also subject to economic influences. There will only be a demand for additional residential capacity in the long term if the population grows fast enough. For the past 20 years, Switzerland’s net birth rate, measured as the excess of births over deaths as a proportion of the population as a whole, has averaged 0.3% per year.

However, migration trends have been much more volatile. While more people left Switzerland in 1997 and 1998 than immigrated into the country, in 2003 Switzerland experienced positive net migration of about 43,000 people, or 0.6% of the population. Apart from population growth, the age structure of the population is also relevant to the analysis of structural demand trends. In last year’s study, we showed in detail that the demand patterns emanating from a typical household change a great deal over the course of the household’s lifetime.

The most important cyclical components of demand are income and interest rate trends. The need for appropriate accommodation will only have an effect on demand in the residential property market if households have sufficient income at their disposal.

One of the main reasons for the small – though rising – owner-occupancy ratio in Switzerland is probably that for a long time now, purchasing a single-family dwelling has simply not been an economically viable proposition for large portions of the Swiss population. However, low interest rates and reasonable prices have recently strengthened the owner-occupied sector.

Finally, demand for residential property is influenced by an opportunity component. This relates to the relationship between the rental or mortgage cost of an apartment or house and the price of other goods. Relative prices are the key. Movements in relative prices between the regions and between different forms of accommodation – rented accommodation, single-family houses, owner-occupied apartments (condominiums), etc. – are also relevant. ...

Download The Swiss real estate market: Facts and trends

PDF format, 1.7MB, 60Pages.

Publisher
Credit Suisse Economic Research
P. O. Box 1, CH- 8070 Zurich
Tel. +41 1 334 74 19

Authors
Ulrich Braun
Martin Neff
Philip Rauh
Pascal Roth
Collaborators
Fredy Hasenmaile (locational quality)
Dr. Sara Carnazzi Weber (demographic scenarios)

Table of contents
Residential property 6
Office property 25
Retail property 37
Real estate as an investment 49
Our products 58

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