The property professionals’ solution

Temporary slowdown in the Swiss real estate market: Analysis and outlook

The Swiss real estate market is experiencing a marked slowdown, but experts agree that this is a temporary phase. Trends in transaction price indices, notably those calculated by CIFI (formerly SWX IAZI Real Estate Indices), point to a slowdown in price momentum. However, against a backdrop of falling interest rates and generally favourable Swiss macroeconomic conditions, this trend is likely to be short-lived.

Price trends and market segmentation

Direct investment in real estate, particularly residential investment properties, fell by 0.3% in the fourth quarter of 2024 compared with the previous quarter. Nevertheless, the IAZI Investment Real Estate Price Index shows a moderate price increase of 1.1% for 2024 as a whole, reflecting an upward trend despite the recent slowdown.
The market for owner-occupied homes presents a mixed picture. Prices for villas fell slightly by 0.2%, while demand for owner-occupied apartments rose by 0.5%. Combining these developments, the result is a minimum increase of 0.1% in the fourth quarter of 2024. However, for the year as a whole, the rise in prices for owner-occupied homes reached 2.7%, in line with the average of previous years.

Factors influencing market dynamics

The outlook for the Swiss real estate market in 2025 is promising. The Swiss National Bank (SNB) has lowered its key interest rate to 0.5%, creating a favorable environment for real estate investment. This decision is part of a global trend, as the European Central Bank and the US Federal Reserve also cut their rates in December 2024.
Lower rates have a direct impact on mortgage costs, making property acquisition more attractive. At the same time, safe alternative investments such as bonds are showing lower yields, stimulating investor interest in real estate.
The Swiss economy is also remarkably resilient compared to its European neighbors. The labor market remains vigorous, with strong demand for labor. This dynamic favors sustained immigration, fuelling demand for housing, both owned and rented.

Banking regulation issues and risks

Despite this favorable outlook, there are a number of factors that could put the brakes on the real estate market's recovery. The revised Basel III standards, which came into force on January 1, 2025, require banks to provide more capital to secure certain types of financing. This new constraint could restrict access to credit, particularly for buyers of investment properties. As a result, those requiring bank financing will have to expect stricter conditions and, potentially, higher mortgage interest rates, depending on their financial situation.

Monetary policy and market stability

The reason for the SNB's key interest rate cut is the reduction in inflationary pressures,” explains the SNB. Swiss inflation fell from 1.1% in August 2024 to 0.7% in November 2024. This trend, driven by falling oil and food prices, has enabled the SNB to adopt a more accommodating monetary policy.
However, uncertainties persist regarding global economic developments. Economic weakness in key markets such as Germany, China and the USA could affect Switzerland in the medium term. In addition, the appreciation of the Swiss franc against the euro and the dollar, due to lower rates abroad, represents a challenge for Swiss exporters. The SNB could intervene on the currency market to stabilize the franc, as it has done in the past.

Scenarios for interest rates in 2025

Analysts remain divided on the future path of key interest rates. Some believe that the SNB could reduce its rate to 0.25% or even 0% in the course of 2025, in order to support the economy. Others consider that keeping the rate at 0.5% would be more appropriate.
One of the SNB's objectives remains price stability. With inflation under control, the SNB could pay closer attention to the economic situation and the value of the Swiss franc.

Impact on mortgage rates and outlook for the real estate market

The SNB's recent decisions have already led to a fall in mortgage rates. By the end of 2024, 10-year fixed rates had fallen to around 1.2%, while 5-year fixed rates were available at less than 1.1%. SARON mortgages were hovering around 1.65%. This drop in financing costs should boost demand for real estate in 2025, for both purchase and rental investment.
In conclusion, although the Swiss real estate market has gone through a slowdown phase in recent years, current conditions point to a gradual recovery in 2025. Lower key interest rates, a resilient Swiss economy and strong housing demand are all positive factors. However, banking regulations and global economic and geopolitical uncertainties could put the brakes on this recovery. It will therefore be essential to monitor developments in monetary policy and financing conditions in order to anticipate trends in the Swiss real estate market over the coming months.



Sources
rts.ch - Article
imvesters.ch - Article
neho.ch - Article