Why rents in Switzerland is getting more expensive
Rising interest rates have led to a slowdown in the global property market. Tighter credit conditions have led to an increase in property prices, while a decline in purchasing power has weakened demand. Even countries with a long history of stable growth in the sector are facing similar problems. A prime example is rental housing in Switzerland. Estimates suggest that prices will rise in the coming years.
In 2022, the global market faced record inflation. Regulators responded by tightening monetary policy, primarily by raising interest rates. For the past two years, the Swiss government has kept the base rate for the rental housing sector at 1.5%. However, the situation has changed, and the Federal Housing Office has announced that it will soon review the interest rate.
Forecasts of interest rate changes
According to the head of the agency, Martin Chirren, the interest rate will rise, and several increases are likely. Such changes will make rents more expensive, as for every additional 0.25pc, property owners will be able to increase rates by 3%. In addition, landlords will be allowed to add 40% to the current rate as an adjustment for inflation and general increases in property maintenance costs. Given these features, Tschirren suggests that we can expect rents in Switzerland to rise by 15% or more by 2026.
The base rate is the average of all interest rates applied to home loans. The total amount of loans for the purchase of a house in Switzerland is approximately CHF 300 million. The interest rate is, therefore, 1. 5%. Dynamics of change:
– the base rate has been in place since 2008 and has been the subject of regular reductions ever since;
– the minimum value of 1.25% was set in March 2023;
– in June 2023, the base rate rose for the first time to 1.5%.
The idea behind the base rate is that if the mortgage goes up, property owners can offset the increased costs from their landlords by increasing their payments to them. If the rate falls, landlords are entitled to a reduction in the amount they pay for the property.
Problems in the Swiss housing market
Rising rents are not the only problem with the Swiss housing market. As in most European countries, there is a shortage of housing. However, this has become even more pronounced after the country’s unexpected population growth. The population of Switzerland increased by a record 148 thousand people, compared to the standard dynamic of 70 thousand people. The property market and the construction sector were not prepared for this, resulting in a worsening housing shortage and a widening gap between supply and demand. Wüest estimated that between 90 and 100 thousand new homes are needed to improve market conditions.