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Real estate: With prices on the rise, will they continue to increase?

By Mazlum Gencer , April 1, 2022

Property prices seem to have experienced only one trend over the last decade and in particular over the last 3 years: a steady increase. And for good reason, supply has been lower than demand since the end of 2019 and this trend is continuing into 2022. As prices approach the red zone, is it still the right time for owners to sell their property?

Thanks to our analysts and the figures gathered from over 1,000 sales in 2021 and our base of 80,000 qualified buyers, we are able to understand and anticipate the trends in the property market in 2022.

 

A price trend that could see some changes

Property market prices have been at a high level in recent years. In fact, there has been an increase of 2.6% in prices per m² for single-family houses between the second and third quarters of 2021. This trend was also observed for apartments, which saw their price per m² increase by 2.4% over the same period. If this trend seems to continue at the beginning of 2022, new regulations on mortgage financing are being put in place.

Indeed, as these values are increasingly approaching the real estate bubble zone defined by the UBS Swiss real estate bubble index, the danger of a bursting is becoming tangible. The Swiss National Bank is also warning of the dangers of inflation leading to higher property prices, and is expected to raise the key interest rate in the near future. There are many international signs that this is the case, and the US Federal Reserve has already begun to gradually raise its key interest rate.

On 26 January 2022, the Swiss Financial Market Supervisory Authority (FINMA) ordered the reactivation of the anti-cyclical capital buffer at 2.5% on residential real estate. This measure could eventually impact real estate market prices by limiting the granting of loans by certain banks. However, a sudden drop in demand and prices is not expected. Rather, a slowdown in price increases is expected. As a seller, it is therefore still a good time to sell your property as waiting for a more significant price increase could be risky. 

It remains to be seen whether this upward trend will also continue in 2022. We do not currently expect a sudden fall in prices. We see that despite the high prices, demand is not slowing down. On average, our platform registers 100 interested buyers per property listed for sale, of which more than 50% show strong interest in the first seven days and an average of 15% become qualified buyers (with the necessary equity and income to purchase a property, editor's note). In addition, we are finding that in a large number of cities properties are being sold above the hedonic estimated price, i.e. above the value determined by comparing sales of similar properties.

Thomas Lambert, Area Sales Director

Sales price estimate vs. transaction

Growing demand still outstrips supply, which continues to weaken

According to the analyses, the demand for properties for sale has continued to increase over the past three years, proving the population's interest in access to property. In fact, there has been a steady increase in demand for all types of properties offered for sale throughout Switzerland. Most potential buyers are still looking for houses and flats in large cities with 3 or 4 bedrooms. 

Over the last two years, sellers have been concerned about the possibility of selling properties with fewer rooms. Our indicators do not detect such a trend. While the pandemic has slightly increased the demand for 3-bedroom properties, a trend partly related to the increase in teleworking, it has not diminished the attractiveness of other property types. The analysis of the search criteria over the last three years does not show a striking change in demand for larger properties, but simply highlights a higher demand for this type of property.

Search for properties - By number of rooms

The supply of real estate in Switzerland has fallen by around 20% since the end of 2019. As a real estate agency, we feel this decrease in the number of properties available on the market strongly against an increasingly growing demand. As a result, we see two trends pointing in different directions: 

  • The strong growth in property prices makes it difficult or even impossible for many households to buy. Indeed, the projected average wage increase of 0.8% in 2022 would be insufficient to cope with the increase in property prices;
  • Despite the recent rise in mortgage interest rates, these remain very low compared to the average of the last 15 years, making property purchases still very attractive for households with sufficient funds. 

An analysis of our buyers' search criteria shows that they are mainly looking for properties close to major cities and with a price per m² of between CHF 6,000 and CHF 7,999. This value is close to the median price per m² estimated by Wüest & Partner for the fourth quarter of 2021, albeit slightly lower, at CHF 7,800. However, there is a wide disparity in prices per square metre between the regions.

Buyer search

 

Given the large price differences between properties in cities and those in rural areas, buyers may have to adjust their budgets or widen their search area. The latter factor may enable them to find a property that meets their criteria at a price that suits their purchasing capacity.

All the factors mentioned above, such as the strong demand, the decrease of offers on the market, or a possible increase in interest rates, give a feeling of uncertainty regarding the stability of prices, raising the question for some owners of a sale during the year 2022. Thanks to the field experience of our real estate agents combined with the analysis of market developments, we are able to give our clients indications to better apprehend the future. We have thus put in place a methodology that enables our clients to sell their property at the best price.

 

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Quick links:

  1. A price trend that could see some changes
    1. Thomas Lambert, Area Sales Director
  2. Growing demand still outstrips supply, which continues to weaken

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