The Swiss real estate market in international comparison

Switzerland as a special case? Read how the Swiss real estate market compares to its international counterparts. Innovation and technological progress will open up a number of additional opportunities in the coming years.

November 2, 2023

Ulrich Braun

Co-Head of Real Estate Switzerland in Credit Suisse Asset Management

The Swiss real estate market is often singled out as a special case in international comparison. In particular, stability in response to global economic crises or fluctuations, such as the 2008 financial crisis, is often used as an argument. However, a closer look at the real estate market in Switzerland over the past few years and decades suggests that the country's supposed special position can rather be attributed to robust framework conditions and a successful combination of economic and political factors, which must also be protected in the longer term. 

Stability and security are the key pillars

The Swiss real estate market is renowned for its stability and security. Switzerland is characterized by a robust economy, political stability and a high level of legal certainty. These factors contribute to the fact that the real estate market is seen as an opportunity for long-term investment subject to the conditions of the macroeconomic environment. During times of economic uncertainty or political turmoil, many investors look for investment opportunities. In addition, when it comes to investment properties in Switzerland, investing in multi-family dwellings is of far greater importance than in most foreign markets. This is due to the fact that, at 36.3 percent,1 Switzerland has one of the lowest home ownership rates in the world. What's more, multi-family dwellings are also considered a relatively conservative investment segment internationally. 

"Switzerland is characterized by a robust economy, political stability and a high level of legal certainty. These factors contribute to the fact that the real estate market is seen as an opportunity for long-term investment subject to the conditions of the macroeconomic environment." Ulrich Braun, co-head real estate Switzerland at Credit Suisse Asset Management

Limited building land and high demand

Due to the topographical situation, the area in Switzerland available for construction activities is limited, especially in large cities and their metropolitan areas. Since the revised Spatial Planning Act entered into force in 2014, combating urban sprawl and managing land resources efficiently have been the top priorities in spatial planning policy. At the same time, demand for residential space and, to a more limited extent, commercial space has remained high over the past few years due to the country's strong economic development, high quality of life and locational attractiveness for international professionals and companies. This discrepancy between supply and demand has contributed to real estate prices often being perceived as high. In addition, it results in a shortage situation in the economic centers, which is currently also reflected in low vacancies. However, the average vacancy rate of 1.3 percent in Switzerland obscures the major regional differences – while the number of vacant apartments in the city of Zurich in June 2022, as measured by the total number of apartments, accounted for an extremely low 0.07 percent, Le Locle (NE), for example, had a vacancy rate of 6.2 percent and Martigny (VS) a vacancy rate of 8 percent.2

Regional vacancy rates housing market 2022 (in percent)

Sources: Swiss Federal Statistical Office, Credit Suisse, data as of 2022. For illustrative purposes only

Regulations and requirements

Switzerland has introduced strict rules and regulations for the real estate market in order to ensure its stability and sustainability. One of the best-known measures is Lex Koller, which regulates the acquisition of residential properties in Switzerland by foreign investors. This is intended to prevent the market from being excessively impacted by foreign capital flows. 

Real estate gains tax is also intended to counteract speculation on real estate investments. In most cantons, this is designed in such a way that the longer the owner keeps the property, the lower the tax burden on net profit. Therefore, people who buy a property and sell it on for a large profit soon afterwards pay the most.

The fact that Swiss investment properties offer partial inflation protection comes from rental law, which provides for short-term rental agreements to be tied to the reference interest rate – i.e., the average interest rate of all mortgages in the Swiss real estate market – and for long-term rental agreements to be tied to inflation. A sharp rise in inflation therefore results in higher rental income after a certain period for both commercial properties (inflation indexing) and rental apartments (reference interest rate).

Contrary to these Swiss specifics, however, Switzerland is experiencing ever-growing regulatory pressure in line with many foreign markets. In recent years, rules and regulations, not to mention the time required, have continued to increase, especially in the case of approval procedures. This results in higher complexity, which increasingly restricts the willingness of many investors to take on project risks. This can lead to long-term housing shortages and potentially create fertile ground for political instability.

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Differences in real estate valuations

One point to note is that there is a significant difference in real estate valuations in German-speaking countries compared to the Anglo-Saxon world in particular: While in Germany, Austria and Switzerland, a strong analytical emphasis is placed on the largest possible number of comparable transactions in real estate valuation, in some Anglo-Saxon markets, merely a single transfer of ownership at a sharply changed price level can result in major value adjustments in the portfolios. Although the objective is the same – namely, to determine market value in the form of the most likely transaction price – valuation trends can drift apart for a certain time, especially during phases of change in the real estate cycle. However, it should also be borne in mind that investors in the above-mentioned markets have a different mindset with regard to real estate price developments.

The Swiss real estate market as a special case?

As mentioned above, discussions about the Swiss real estate market often lean heavily on the particularly vague term "special case." As the above explanations show, developments in Swiss properties are by no means extraordinary or unique in an international context. Rather, it can be shown how various factors, such as economic and political stability, limited building land, reasonable regulations and high demand, can interact successfully.

Despite the positive aspects of the Swiss real estate market, however, there are also some challenges. Rising prices and rents have led to an affordability crisis in many places. Accordingly, the number of regulatory proposals in the real estate market in municipalities and cantons has continued to increase in recent quarters, which could make developments, construction projects, or renovations increasingly difficult. 

Nevertheless, the Swiss real estate market also offers numerous opportunities for innovation. Increasing and modernizing existing buildings, as well as streamlining approval processes, could help to reduce the supply gap and improve affordability in the medium term. Finally, along with their foreign counterparts, numerous institutional investors have begun to align their portfolios with a goal of net zero greenhouse gas emissions. We are convinced that innovation and technological progress in this area will open up a number of other opportunities here in the years ahead. 

A showpiece for successful repurposing: In the Octavo II property in Zurich, offices were turned into stylish apartments with lots of wood and state-of-the-art fittings.

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1 Swiss Federal Statistical Office; data as of 2021
2 Swiss Federal Statistical Office; data as of June 2022


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