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Investing in real estate: opportunities and perspectives in Switzerland and abroad
Zoltan Szelyes
Chief Executive Officer, Macro Real Estate AG
Fabio Simoncini
Client Portfolio Specialist, Lombard Odier
key takeaways.
In most countries, real estate prices have been moving up in real terms for two decades
Since 2022, however, investing in real estate has grown more complex because of the uptick in inflation and the rising cost of financing – these have held back demand in many regions
The markets most affected by short-term mortgage financing, notably Sweden and the United Kingdom, have been hit
Deteriorating macroeconomic conditions have been putting downward pressure on residential real estate prices in Germany and France
Dubai has been a major beneficiary of the global geopolitical situation since the start of the war in Ukraine and is attracting family offices and wealthy individuals from the BRICS countries
In Switzerland the abolition of imputed rental value will have a negative impact on the price of condominiums and private owner-occupied properties.
Real estate prices up all over the world, despite a slowdown recently
Changes in the prices of houses and apartments are a key driver of household wealth. Demand for owner-occupied housing is largely fuelled by migration (the number of people entering or leaving a given region) and the purchasing power of the people concerned. Supply trends are also crucial.
In most countries, real estate prices have been moving up in real terms over the past 22 years. In some markets prices move more cyclically; in others the rise has been more regular and steady.
Since 2022, however, the emergence of inflation and the rise in financing costs have cut purchasing power and held back demand in many parts of the world. The markets most affected by short-term mortgage financing, notably Sweden and the United Kingdom, have been among the hardest hit. In addition London, a favourite destination for foreigners, recently announced a less favourable tax regime, leading to an exodus of wealthy individuals.
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At the same time the general deterioration in macroeconomic conditions, exacerbated by social and economic challenges (security, infrastructure, transport, etc.), has put considerable downward pressure on residential property prices in Germany and France. Nevertheless, some countries have bucked the negative trends, among them Spain, Dubai and Singapore.
Dubai has been a major beneficiary of the global geopolitical situation since the start of the war in Ukraine and is attracting family offices and wealthy individuals from the BRICS countries
In Europe, Spain has benefited from its status as a holiday and immigration destination for people coming from Latin America, and residential real estate has held up better in southern Europe than in the EMU core countries. Dubai has been a major beneficiary of the global geopolitical situation since the start of the war in Ukraine and is attracting family offices and wealthy individuals from the BRICS countries, who are increasingly choosing it over traditional European or American cities. Even so, both destinations have seen more marked slowdowns than comparable markets because of an overhang of supply; Dubai has been known in the past for its cycles of growth and slowdown. In Singapore, residential real estate prices reflect the city's growing role as Asia's financial and commercial hub.
It is worth noting that the US residential real estate market has been much more resilient than during the global financial crisis, which saw prices tumble 30-40%. A few local shocks to one side, adjustments have mostly been measured, as many borrowers locked in long-term mortgage rates when interest rates were low.
Correction in commercial real estate and residential investment properties
In many countries, commercial real estate and residential investment properties have seen sharper corrections than owner-occupied. Yields had fallen to record lows in 2021, but have since recovered in response to the rise in bond yields, reflecting how sensitive real estate is to financing costs and relative asset allocation.
Yields had fallen to record lows in 2021, but have since recovered in response to the rise in bond yields
Unlike the across-the-board decline seen during the global financial crisis, the current correction is patchy; sectors such as logistics, residential rentals and alternative solutions (e.g. student housing) continue to be supported by low vacancy rates and rising rents, whereas offices and shops are facing structural difficulties that were made worse by the pandemic. Bearing in mind that supply reacts to demand with a certain lag in real estate markets, the current volume of construction suggests supply of new-build will be limited in many sectors over the next two years.
Lower valuations and higher interest rates may provide some support
Investors focused on commercial real estate and residential investment properties are confronted with a market that has revalued, hence they can now invest capital at more attractive yields. As the inflationary pressures of 2022 and 2023 faded away, interest rates started to decline, improving financing conditions. In Europe, limited supply suggests strong rental growth to come, boosting interest in the region. Given the strong divergences between countries and sectors, having a research-based approach is key when it comes to successful investing in real estate. Over time the rapid advances in technology, the ageing population and various secular trends will continue to reshape demand for real estate. Investors will also have to adapt their indirect allocations to reflect the changing realities in the market.
Swiss real estate holding up despite reduction in reference mortgage rate
Since 2008 the Swiss reference mortgage rate, based on average bank mortgage rates, has been the country's indicator for determining adjustments to rents. In 2025 around 60% of rental agreements were indexed to this rate. The recent 0.25 percentage point decline to 1.25%, caused by the Swiss National Bank cutting its benchmark rate to zero, means Swiss tenants can now request a reduction of around 3% in their rent.
Nevertheless, cash flows from rental funds remain steady. This resilience is mainly due to the shortage of apartments, with vacancy rates below 1% in large cities, and unwillingness on the part of tenants to ask for a cut in their rent for fear of being blacklisted by property managers. In the circumstances, the impact on the performance of Swiss real estate funds has proven modest.
Office market: demand recovering and evolving
In office markets, rents rose slightly in 2024 but are still 5-10% lower than they were in 2019, after adjusting for inflation. Supply of office increased a little, especially near Geneva airport and to the north of Zurich.
Demand is being driven by growing employment in sectors with high value-added such as IT and finance, with Zurich and Zug leading the way. Geneva continues to lag as growth moves away to surrounding areas. Current rents in sought-after areas are rising in central Zurich (+15% since 2019), but holding steady in Geneva.
Current rents in sought-after areas are rising in central Zurich (+15% since 2019), but holding steady in Geneva
Tenants are increasingly looking for space that is flexible and sustainable in prime locations; this has triggered a wave of conversions, which now account for 60% of investment in the office segment. Rents for this sort of modern office space are now higher than they were before the pandemic. At the same time, teleworking is losing momentum, which should lend further support to demand for office space.
Tax reform in Switzerland: tax on imputed rental value to be abolished following referendum on 28 September
On 28 September Swiss voters approved the abolition of the tax on imputed rental value for owner-occupied properties. This tax is based on a hypothetical income equivalent to the amount owners could receive if they rented their property out, and generally represents 60-70% of the market rent in French-speaking Switzerland and 70-80% in the German-speaking part of the country. The abolition will not take effect until 2028, possibly even later.
This reform will have a direct impact on people looking to invest in Swiss real estate, especially with the abolition of tax deductions for mortgage interest and maintenance costs on owner-occupied primary and second homes. It will put a brake on investments in older properties, especially those needing major renovations to meet Switzerland's targets for CO2 emissions by 2050. Also, to make up for the shortfall in tax revenue, the cantons may bring in a new property tax on second home and raise taxes more generally (possibly putting up VAT), which would affect the entire population. The Canton of Valais, for example, attempted to bring in a second homes tax back in 2009, but without success; this indicates how complex the matter is.
All in all, investing in residential real estate in Switzerland may become less attractive, with knock-on effects on the prices of condominiums and private owner-occupied properties
All in all, investing in residential real estate in Switzerland may become less attractive, with knock-on effects on the prices of condominiums and private owner-occupied properties. Doing away with the tax breaks granted for renovation works will remove the main financial incentive for owners to maintain and modernise their properties. This could speed up the depreciation of these assets, both physically and in the market, and ultimately weaken the resale market, increase discounts at the point of sale and cause an erosion in the value of much of the stock of Swiss real estate.
It is important to note, however, that the referendum only applies to main and second owner-occupied homes; it does not affect rental or commercial properties. It therefore will have no impact on listed Swiss real estate funds, and even less on commercial funds, which only hold investment properties.
important information
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