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- Moritz Falck
The year 2025 promises to be a dynamic one for the Swiss property market. From somewhat distant international conflicts and trade rivalries, an uncertain financial market environment or political upheavals in the neighbourhood to local interest rate decisions and local planning revisions. We are pleased to share our forecasts with you in 5 points in the first newsletter of the year.
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1. forecast - development of property interest rates
The SNB is keeping the current key interest rate at 0.50 per cent. Property owners already felt a correction in mortgage interest rates last year. The majority of market expectations are for a further interest rate cut of 0.25 per cent next March or June. Whether this will be followed by further steps is currently unclear and depends heavily on how the economy develops. What is clear is that the latest interest rate cuts in the eurozone and high demand for Swiss francs will keep exchange rate pressure high and the SNB will have to counter this with low interest rates. The big unknown is the possible return of inflation.
Although the generally weak global economy tends to argue against this, the tariffs announced by the US government and newly flaring trade wars could quickly make goods and services more expensive again. Nevertheless, we expect interest rates in Switzerland to remain stable at around 0.25 per cent. This will once again open up more exciting opportunities for property owners when financing with SARON mortgages. We recommend benefiting more from this type of financing again, at least for part of the portfolio.
2. forecast - property market: forecasts and trends
In our main scenario, we expect prices to develop similarly to the last few quarters. The majority of owner-occupied homes will increase in value, although flats are likely to be slightly ahead in terms of value growth. Demand for residential property remains high, particularly in urban areas, and is being fuelled by the renewed fall in interest rates. In some areas, people are already increasingly switching from renting, which has been slightly more favourable to date, to owning. The market is anticipating an average price increase of between 3-4% for owner-occupied flats.
Investment property prices are also likely to pick up again. In addition to the equally high demand for rental flats, this is also supported by the increase in investments by institutional investors. Once again confronted with a low interest rate environment, they are looking for investment opportunities and increasingly see them in property. With their concentrated purchasing power, they are a strong price driver.
Most recently, commercial property prices can be expected to stagnate on average. In prime locations, all price indicators are pointing upwards - one of the reasons why Jelmoli and Manor are unable to hold on to these locations. Away from these locations, however, the office market is rather subdued and the bricks-and-mortar retail business remains under strong pressure.
3. forecast - older heating systems are slowly becoming expensive
Following a self-sufficiency boom in heat pumps and district heating connections in the wake of the war in Ukraine, demand has levelled out again somewhat. The record prices for oil and gas from the winter of 2022 have also fallen significantly. Nevertheless, it must be noted that the operating costs of fossil heating systems are slowly but surely becoming more expensive. A barrel of Brent oil currently costs a whopping USD 76 and this in a rather weakening global economy. At USD 3.20 per standard cubic unit, natural gas is reasonably cheap, not least thanks to the large quantities of liquefied natural gas (LNG) being produced. However, gas is also a far cry from last year's USD 2.47.
In addition to more expensive operating resources, the costs for maintaining the systems are also increasing, especially for older versions. Fewer spare parts are available and the expertise for these systems is becoming more expensive, as more and more specialists are being trained and deployed on newer systems.
The extent to which the building programmes funded by the federal government and cantons will continue is also an open question. We think that these programmes will remain in place for the next 2-4 years. After that, however, we would be cautious about making a forecast. On the one hand, energy and climate legislation against fossil-fuelled heating systems is becoming stricter, while on the other, the federal government and cantons must also put such programmes to the test in view of tight finances. If you want to protect yourself from surprises and have an old heating system that has been in service for more than 15 years, we believe you should definitely start thinking about a replacement project.
4. forecast - construction activity
The market and we are confident that construction activity is likely to increase again somewhat in 2025 after many years of decline. We believe that the main drivers of this development will be the continued high level of net immigration, the renewed shift of institutional investors into the property market and a lower interest rate environment. The main indication for this forecast is the increase in building applications, which have risen by 4.6 per cent in recent quarters. This is certainly not a relief for the construction industry, but at least there is a silver lining on the horizon.
What is striking and at the same time worrying about these building applications is the continuing low proportion of private investors. Institutional investors account for a large proportion of the new construction momentum. Private investors continue to shy away from the increasingly complex and risky building permit procedures. They are also more sensitive to rising construction costs and global trade uncertainty.
5. forecast - political desires
Unfortunately, we fear that the political battle over the distribution of property is likely to increase. This applies above all to one particular commodity: urban rental flats. Urban rents rose again last year, in some cases by over 6% in certain urban regions. Most salaries and assets cannot keep up with this, which is increasingly leading to displacement - both of low incomes and, more recently, of the middle class. At the same time, as politicians are not properly addressing the basic problem, namely enabling demand-orientated housing production, rents are rising. Last autumn's votes on owner-occupation and subletting showed how politicised and controversial the rental issue is. The fact that the vote was stylised in certain circles as an ‘attack on tenants’ is an expression of this increasingly emotional debate.
A small ray of hope can be seen in various planning revisions, the majority of which would like to allow greater densification and should therefore have a positive impact on the housing market in the medium term. Nevertheless, political desires remain acute, such as the demand for more state housing, a rent cap or additional property taxation. The fact that the political curtailment of the supply of living space has mostly negative effects is demonstrated by cities such as Geneva and Basel on the basis of the latest studies, but this will hardly be perceptible in the day-to-day business of urban housing policy.
