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Covid-19: Switzerland and the Coronavirus situation

Covid-19: Switzerland and the Coronavirus situation

Where the dangers are now hidden on the Swiss real estate market.

(Summary of the article published in NZZ (Neue Zürcher Zeitung on March 26, 2020), written by Michael Schäfer.)

The pandemic is also affecting the real estate market, but the impact is different depending on the segment. In addition to the short-term effects, there may also be more long-term changes.

In recent years, real estate has not only been a haven thanks to the environment of low interest rates but has also generated relatively high returns.

This was particularly impressive last year, when Swiss real estate values increased by 37% on the basis of the real estate index and real estate funds by 22% (Swiit index). But outside the stock market, real estate, according to figures from the real estate service provider Iazi, generated an impressive total return of 6.2% (sum of rental income and changes in valuation).

Real estate fund shares

As the whole world…, Switzerland is also heading for a recession.

However, the corona virus has ended this dream constellation. This is most clearly seen on the stock market, where the response time is naturally very short. In mid-February, Swiss real estate values reached historic highs, since then the prices of real estate values have fallen to 28% and those of real estate funds to 17%.

The hotel industry quickly recovered from the Sars pandemic.

Experts from Jones Lang LaSalle (JLL) have ranked the hospitality segment as the most affected real estate segment to date. These suffer not only from fairs and conferences postponed or cancelled, but also from the loss of business trips and vacations.

The severity of defaults will depend partly on the development of the crisis and on the other hand on the extent of government assistance. If we refer to the Sars 2002/03 pandemic, which was also hit hard by the hotel industry, according to JLL, it gave a little courage, but recovered relatively quickly thereafter.

Condo prices will be under more pressure than single family homes.

The effects are present less negative for the residential real estate segment. In the rental apartment market, Immobilien Service Wüest Partner (WP), one of the most respected research agencies in the Swiss real estate sector, expects additional demand to fall and rents to fall.

There will be no collapse in demand because the basic need for housing cannot be replaced, and the extended social systems with unemployment insurance and short-term benefits have a stabilizing effect. At JLL too, it is assumed that loss of rent will remain the exception.

When it comes to home ownership, no one is currently expecting a serious and permanent collapse. The consensus is that the consistency of rental income will ensure a certain degree of solidity, especially in the case of investment properties in the residential area.

However, total returns similar to those seen in previous years should not be expected. This is mainly due to the fact that, according to Iazi, the valuations were generated on optimistic assumptions concerning future rents, which will no longer be realized, WP experts assuming that demand will be moderate despite the extremely low mortgage rates.

Temporary wages could fall, especially in higher income brackets, and given the turmoil in the financial markets, it was likely that many buyers’ equity might have declined. This situation could lead to a fall in house prices, experience having shown that the fall will be more significant for condominiums than for individual houses.

THIJS STOFFER
STOFFER CONSULTING GMBH
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