Danger Signs As Swiss Property Market Bubbles Along

Fears are rising that the booming real estate market in Switzerland is over-heating after the government stepped in with cooling measures.

With strong demand for residential property coupled with historic low interest rates on mortgages, the strong seller’s market looks set to continue through 2013.

Even with the cooling measures in place, property analysts are predicting that the rate of property price increases will fall back slightly to between 3% and 5% this year.

Among the cooling measures introduced by the Swiss government was to increase the level of liquidity in its banks to help improve financial stability which, in turn, led to tougher lending criteria.

In addition, mortgage lenders have also demanded that homebuyers provide larger deposits, which has dampened the market slightly.

Confident buyers

The Swiss property market is being fuelled with an estimated net immigration of 60,000 people expected this year, and in many places buying property is cheaper than renting.

Wage rises are also on the cards this year, helping people to buy property as homes as the market does not have large numbers of speculators looking to cash in on the boom.

The Swiss economy is doing well and no one is predicting a recession any time soon, which means that buyers are confident that they are making a sound investment.

In addition, there is no oversupply of residential real estate in Switzerland and building land in central locations is hard to find.

Even then, the supply pipeline of new properties in Switzerland is full and it is widely acknowledged that the country’s construction sector cannot produce enough apartments to meet demand.

Analysts say the only factor that could derail an increase in property prices in Switzerland is for interest rates to rise.

Low office rents

The rise would have to be sharp, since vacancy levels for residential property are low and properties tend to sell quickly.

Switzerland’s commercial property sector is very different to the residential real estate with little sign that the market will overheat in the same way.

Indeed, many areas are seeing increasing vacancy rates in the office market since new office developments with excellent transport links outside city centres are attracting tenants helped by the low interest rates.

Developers of commercial property are giving discounted rates to attract large companies.

The move by firms to out-of-town developments means that the offices they leave behind need refurbishing and are also attract lower rents than the outgoing tenant paid.