The Swiss Real Estate Market Faces a Downturn Due to Rising Interest Rates

A recent study conducted by the consulting group Fahrländer Partner (FPRE) has revealed a notable decrease in house prices in Switzerland, as the country grapples with the consequences of an interest rate hike. Experts have pointed out that house prices in Switzerland hit their zenith in 2022, and there is an anticipation that this downward trend may persist, as projected by the Swiss National Bank.

Average Property Values in Switzerland Decrease

Based on their findings, the average value of residential properties in Switzerland has decreased by 10% since the beginning of 2023. Property prices now stand at a level 13.4% lower than their peak in mid-2022, as reported by the organization.

Variation in Price Decline Across Regions

The decline in property prices varied significantly by region, with the most substantial reductions observed in Appenzells (-17.6% Obwalden (-17.3%), and Solothurn (-16.5%). Even in Zurich, the average property costs have dropped by over 10%, while the smallest price adjustment was observed in Canton Uri (-8.4%).

Attributing Factors: Higher Interest Rates and Price Corrections

FPRE attributes the primary reason for declining prices to the higher interest rates on Swiss mortgages, rendering housing less affordable and less lucrative as an investment for pension funds, financial institutions, and other property investors. A shift based on “fundamental factors” has also contributed to the price adjustment, with the persisting reality that purchasing a home remains, on average, 45% more expensive in the long term than renting.

Government and National Institutions Take Notice

The fluctuations in property prices have garnered the attention of government and national institutions. In its latest economic report, the Swiss National Bank foresees the potential continuation of property price decreases.

Swiss Housing Market Remains Expensive

Despite the recent dip in prices, FPRE emphasizes that housing in Switzerland is still 154% more expensive than it was at the turn of the century. Swiss cities continue to be recognized for having some of the most overpriced residential properties globally. Experts further clarify that while the 10% reduction is significant, property prices have regressed to the levels seen in 2019.

The higher interest rates on Swiss mortgages have also made homeownership less attainable for the average person. Consequently, the drop in property prices is unlikely to result in housing becoming more affordable.