Lower Interest Rates Support Prices for Investment Properties
Yields from investments in multi-family homes had significantly suffered after the end of the low-interest rate era, and institutional investors had also shown a decreased appetite for such properties. However, according to recent data from the real estate consulting firm IAZI, the market is regaining momentum.
In the third quarter, prices for multi-family houses increased by 1.3 percent, according to «SWX IAZI Investment Real Estate Price Index». This rise marks the end of the sideways movement seen in the previous two quarters. On a year-over-year basis, prices were 2.6 percent higher by the end of September.
«The renewed momentum is not unexpected, as fundamental factors such as the interest rate environment and immigration enhance the attractiveness of direct real estate investments,» the report states.
Basel-III Could Increase Lending Costs
Looking ahead, IAZI points to the potential impact of the Basel III standards, which will take effect in Switzerland as early as 2025. «Mortgage institutions will need to secure real estate transactions with high loan-to-value ratios with significantly more equity, which could further drive up the already sluggish lending activity.» If and how this will impact property prices remains to be seen.
For owner-occupied residential properties, prices rose by 0.8 percent, with condominium prices increasing by 1.0 percent and single-family homes by 0.7 percent. Compared to the previous year, homeownership prices increased by 3.8 percent.
Demand Continues to Outpace Supply
The main driver of price increases is the limited supply. «As long as the population, and in turn, the demand for housing—continues to grow and economic conditions remain stable, the upward trend in prices is expected to persist,» the experts predict. Despite unexpectedly strong construction activity last year, the expansion of available space has not kept pace with demand.
Low vacancy rates further confirm this trend, with vacancy rates for owner-occupied properties at 0.7 percent and rental properties at 1.5 percent.
