Swiss prime property market remains strong, according to analysts

Switzerland remains one of Europe’s most stable and prosperous economies, an important safe haven for wealthy property investors and although new laws and taxes introduced some uncertainty to the market in 2012, luxury sales volumes have held firm, new research shows.

Demand is currently being driven in part by stronger demand from Euro based buyers, according to the latest Swiss Insight report from international property firm Knight Frank.

The report points out that Swiss GDP growth is estimated to reach 1.2% in 2013 compared to -0.3% for the Eurozone so the economy is outperforming other countries in the area.

Mainstream Swiss house prices have risen by 30% since the start of 2007, outperforming all of the other main European markets and limited new supply and historically low interest rates have pushed prices higher.
‘Concerns of a price bubble in the mainstream housing market have increased but the government has introduced new measures to tighten lending,’ said Kate Everett-Allen, head of International Residential Research at Knight Frank.

Swiss luxury housing markets by comparison have followed two different courses since 2007, the report shows. The lack of available property in most of the country’s principal German speaking cities in the north and central regions such as Zurich, Zug and Schwyz, has kept prices largely static while the French speaking cantons in the east, including Geneva and Vaud, have seen price falls of between 10% and 15% as vendors have become more realistic, conscious that the pre-crisis highs have waned.

Overall 2012 provided mixed fortunes for the luxury property market. Despite rising sales volumes prime prices in Geneva and Zurich fell marginally, by 6% and 2.5% respectively due in part to stricter lending policy and a new set of laws and taxes which introduced a measure of uncertainty.

Everett-Allen explained that a lack of clarity surrounding the introduction of Lex Weber, a 20% cap on second homes, the tightening of banking rules in relation to undeclared assets, and the proposal to change federal rules on lump sum taxation, led some buyers to adopt a wait and see approach.

However, the outlook for prime prices in Switzerland looks positive. Demand looks set to remain strong and supply tight. According to the Knight Frank Wealth Report Switzerland is forecast to see a 27% rise in its High Net Worth Individuals between 2012 and 2022 and strict planning regulations along with Lex Weber will curtail new development.

‘Add to this Switzerland’s benign stance on tax, its high political stability and its laws protecting banking secrecy, albeit their stringency is being tested by international pressure, and Switzerland’s ranking among the world’s wealthy looks assured,’ said Everett-Allen.

‘As a global financial centre with exemplary schools, offering a safe environment and with the Alpine resorts on its doorstep many consider it the prime location to bring up a family which explains Zurich and Geneva’s high ranking in the latest Wealth Report’s Global Cities Survey,’ she explained.

The report also points out that 2012 provided an improving set of fundamentals for the Geneva housing market. The number of homes sold above CHF10 million rose significantly from around 15 to 35 year on year as the sense of concern amongst buyers following the Swiss National Bank’s currency cap in September 2011 started to dissipate.

Activity was markedly higher in the second half of 2012 as buyers, many interested in city centre homes as well as high end properties in the Vaud canton, looked to secure their property prior to international taxation pressure commencing.

Overall prime prices dipped by around 6% in 2012, with vendors being more realistic on price, conscious that the prices have fallen 10% to 15% from their pre-crisis highs. But the best properties in prime locations have retained their value. Areas such as Cologny, Collonge, Bellerive, Geneva’s Old Town and Champel are in the greatest demand.

Aside from existing international buyers already resident in Switzerland, purchasers based in France, Spain and the UK are currently the most active in the Geneva market.

Concerns surrounding the upcoming vote in 2015 on the future of lump sum taxation have slowed the market in the CHF3 million to CHF 8 million price range but Knight Frank says that buyers are swiftly realising that now is the best time to agree their fixed rate given that any ruling will not come into effect until 2018 at the earliest.
The performance of Zurich’s prime property market is strongly linked to its financial services sector which accounts for 40% of the city’s economy. Most of the city’s prime markets saw prices soften in 2012, albeit by 2% to 3%. Sales volumes were healthy in 2012 due primarily to the improved availability of stock rather than a marked upturn in buyer sentiment.

Detached family homes on Zurich’s Gold Coast bucked the trend and saw price growth of around 5% in 2012 due to the lack of inventory and homes throughout the Gold Coast from Zollikon all the way to Stäfa are attracting the strongest demand.

The average price of a typical prime property is around CHF22,000 per square meter. The number of foreign nationals in Zurich rose by 14.7% in the decade to 2011 and now constitutes 31% of the population, with the biggest groups of expats coming from Germany, Italy and the UK.

Lugano, long been favoured by northern European buyers because of its Mediterranean climate and its accessibility via nearby Milan airport, has become increasingly popular with British buyers. It is located close to the Italian border in the Canton of Ticino, and is Switzerland’s third largest financial centre.

buyers from Russia, Italy, Germany, Northern Europe and from other parts of Switzerland are also strong in the area, attracted to the Italian lifestyle, excellent schools that have shorter waiting lists than elsewhere in Switzerland, the safe environment and Swiss efficiency.

The CHF4 million to CHF7 million price bracket currently generates the strongest interest among incoming permanent residents. Activity in Lugano’s second homes market is focused between CHF1 million and CHF3.5 million. The report says this is because although foreigners are allowed to purchase second homes in the region, they can only acquire homes with up to a maximum of 200 square meters of official living space and above this size they would need to become a Swiss resident.

The areas around Morcote, Castagnola and Paradiso remain the most sought after. Like the other core Swiss markets, prices in and around Lugano softened in 2012 by around 3% to 5%. However, Knight Frank says that this correction has been due to a willingness on the part of vendors to conclude sales within a reasonable period rather than a lack of buyer demand, interest remains strong for correctly priced stock.