Coronavirus increases residential real estate prices

In 2020, the Swiss real estate market was turned upside down by the Covid-19 pandemic. Contrary to forecasts, demand for owner-occupied housing has remained higher than supply, resulting in an unexpected rise in prices, particularly on the outskirts of urban centers.

The Covid-19 has completely changed the forecasts for the Swiss real estate market. In the spring of 2020, many experts expected prices for owner-occupied housing to remain stable, but this was not to be. Despite the economic downturn caused by Covid-19, the expected decline in demand did not occur. The dream of home ownership seems to have increased dramatically among the population.

According to Wüest Partner, the transaction price for an average single-family home thus rose by 5.1% compared to 2019, while the increase in the condominium segment was 3.1%. According to the Swiss Real Estate Offer Index, published in early January 2021 by ImmoScout 24 and the real estate consultancy CIFI SA, prices for single-family homes rose by 5.6% between January and December 2020. A similar increase was recorded for apartments (+5.5%).

Strong price growth in the fourth quarter

Demand increased mostly during the third and fourth quarters of 2020, leading to a significant increase in prices during the same period. The Zurich-based research firm Fahrländer Partner Raumentwicklung reports that residential property prices rose strongly at the end of 2020. This was especially the case for houses, where prices rose by an average of 7.1% in the fourth quarter.

According to the research firm, the strongest growth was observed in Zurich (+9.3%), the Mittelland (+8.6%) and the Lake Geneva region (+7.4%). In 2021, the situation is expected to calm down somewhat, with prices for apartments remaining "stable or even rising slightly" and a more moderate dynamic for houses. Prices for owner-occupied apartments have risen by 5.9% in the middle market and by 5.4% at the entry level. In the luxury segment, however, prices have almost stagnated (-0.5%). The average increase for owner-occupied housing was thus 2.6% between October and the end of December 2020, Fahrländer said in its study.

Boom in peripheral areas

It should be noted that sales prices have generally experienced above-average growth in areas located somewhat away from the major urban centers. According to the "Swiss Real Estate Market" report published by UBS at the beginning of December 2020, three quarters of all communes recorded price increases. This is due to the fact that decentralized and advantageous locations are gaining in popularity. The increase in the number of telecommuters is causing many buyers to expand their search radius.

In November 2020, the real estate portal ImmoScout24 identified two contradictory trends in the Swiss real estate market. Firstly, a fall in rents (-0.6% on average in November, a trend confirmed by UBS, which estimates a 2% fall in the third and fourth quarters of 2020), which can be explained in particular by the development of the supply of apartments in Switzerland. Second, an increase in single-family home prices. Over the last 12 months, the price of single-family homes advertised in classified ads has risen by 6.7%, according to ImmoScout24. Both trends are believed to reflect the changing preferences of the Swiss during the pandemic crisis. "Many people are looking for more living space and more security. They want to get it in the form of a home ownership", analyzed Martin Waeber, director of ImmoScout24, quoted in Bilan in early December 2020. The fact remains that over the past year, rents do not seem to have escaped the upward trend, increasing by an average of 1.1% across the country. In the Lake Geneva region, the prices offered have even risen by an average of 2.5% in the course of 2020.

Outlook in 2021

UBS analysts expect a lull in real estate activity throughout Switzerland with the expected economic recovery in 2021. Overall, however, the real estate market is expected to reflect the structural changes brought about by the Covid-19 pandemic: accelerated telecommuting, renewed attraction for residential real estate located beyond the usual commuting distances and other tourist locations. As a result, "the peripheries are benefiting from a demand that will massively increase," according to Claudio Saputelli, head of real estate at UBS's wealth management division, quoted by Bilan in January. Office space, which was in trouble in 2020, is expected to slowly recover, while non-food commercial space will continue to struggle with rent losses, UBS said.