The real estate industry might have crossed new highs, but it has created some concerns for the resident and government of Switzerland. And so here is everything you need to know about it.
If your dream house lies in Switzerland, you must know that it gets expensive day by day. The real estate market is now hitting the skies. With unexpected increases in prices because of the shortage of houses and residential properties.
Effects of Covid-19 on Switzerland Real Estate Industry
Covid-19 has affected a lot of industries adversely, and the housing industry is one of them. Due to the pandemic, there has been a shortage of labour and supply chain. The shortage has made construction very uncertain.
On the other hand, the demand is constantly increasing despite no significant increase in the population. Which is making the real estate market in Switzerland vulnerable.
According to Federal Statistic Office (FSO), there was an average rise of 2.5% in property prices in 2020. And this trend of rising prices was noticed in all residential properties. Ranging from owner-occupied property to single residential property to holiday homes in rural and urban areas.
The Swiss Residential property price index (IMPI) increased by 2.3% in Quarter 4 compared to the previous quarter statistics in the last year.
This index is calculated every quarter by the Federal Statistic Office by measuring the property transaction prices.
And these studies show that there was a rise of 5.4% in residential housing, which was the largest in the past eight years.
And so, if I have to sum it up in layman’s language, initially, the average price of a property was 6.5 times the annual income before the Covid pandemic. Still, now this figure has risen to around 7.1 times the yearly income.
And so, from all these figures, one question pops up in all of our heads. What is the reason for such a hike? How come the demand for real estate in the pandemic is rising at such a fast pace? Well, the answer is straightforward.
Because of the pandemic, the mindset and lifestyle of the people have changed. And this change has resulted in a change in preferences.
The Prefrences of People have changed
People now prefer to relocate to quieter places in the suburban region compared to the hectic life in urban areas.
However, the work from home setting and the travel restrictions have played a massive role in this decision—and because of this, the demand for a second home or a vacation home has been increasing tremendously.
People are investing more and more into the properties, where they can escape their routine life in times of the pandemic.
But this brings us to another question, how is this phenomenon affecting the economy of the country? The answer is not that fascinating, as this unprecedented increase in demand leads to a rise in mortgage loans and debts.
And as there is no increase in the citizens’ income, a massive chunk of these loans are at risk of default.
The Swiss National Bank believes that around 30% of the newly granted loans are at a risk of turning into non-performing assets (NPA), which tends to reflect poorly on the economy. And this phenomenon also tends to affect the landlords severely.
The prices of the houses are rising at a fast rate. But the landlords cannot charge high rents as people’s income is still stagnant. And so, the interest of the loan creates an extra burden on the landlords.
Therefore, it can rightly be concluded that the real estate industry of Switzerland is volatile and requires immediate attention!
One of the easiest ways to create an equilibrium is by increasing the interest rates of housing loans. Which might help control the demand, giving some time to balance the supply of the actual need.
This action will create a positive effect in the long term and finally work towards the ideal goal of creating affordable housing for everyone.
