UBS double study: second and luxury home markets in Switzerland

Zurich, 23 May 2019

Luxury real estate market:

Boom near major cities

Switzerland’s highest home prices are being paid on the shores of Lake Geneva. The leader is Cologny, where luxury properties change hands for more than CHF 35,000 per square meter of living space. Prices approach similar levels in the tourist regions of Gstaad and St. Moritz. Luxury property prices on Lake Zurich are a little lower—ranging from around CHF 20,000 to CHF 30,000 per square meter.

Prices rising faster than in medium segment

Transaction prices for luxury properties went up around 4% last year—nearly double the rate for the market as a whole. That uptick made 2018 the biggest year for the luxury segment since 2013. One of the main drivers of demand for luxury property is growth in top-tier incomes. This income bracket benefited heavily from last year’s booming economy.

This is particularly evident from advertised prices in central locations and in relatively low-tax municipalities. Asking prices for luxury properties in the Lake Geneva region, for example, rose around 9% a year on average over the past two years. Annualized growth in Lake Zurich and in Central Switzerland also reached the high end of 7%. In parts of Ticino and the Alpine luxury markets, in contrast, prices declined.

Weak growth clouds outlook

Economic volatility disproportionately affects demand for luxury property. The Swiss franc exchange rate impacts the market as well, since three out of every four buyers of Swiss luxury properties have a foreign passport, although most likely many are Swiss residents. In 2019 prices in the luxury segment are unlikely to repeat the previous year’s strong growth because of the economic slowdown.

Vacation apartment market:

Growing gap between expensive and cheap

A traditional non-luxury vacation property in the Swiss Alps costs around a million Swiss francs. Prices per square meter range from CHF 15,000 in St. Moritz and Gstaad to CHF 5,000 in Disentis/Mustér or Evolène. Market conditions for vacation apartments remained challenging last year. In tourist regions, apartments are vacant at a rate nearly double the national average. In addition, the holiday home market is not supported by the demand for first home markets or by foreign buyers. Prices stayed flat year-on-year when averaged across all the destinations.

Top destinations extend their lead

However, some of the most expensive Swiss vacation destinations posted significant price gains last year. For example, second apartment prices in Gstaad and Verbier rose more than 10% year-on-year. Prices also climbed in the Jungfrau region, Davos/Klosters, Zermatt and St. Moritz. The vacancy rate at these prime destinations is 2.5% — much lower than in the other regions. They also attract a disproportionate share of foreign demand for vacation apartments, though that demand is still historically low.

High structural vacancy rate in Valais

By contrast, prices fell in most of the less expensive tourist destinations. Large year-on-year drops were recorded in Breil/Brigels, Evolène and Anniviers. Many vacation spots in Valais and Vaud in particular still have a huge glut of second apartments. Above all, many apartments from the 1960s and 1970s remain vacant. Reconstruction investment in this kind of real estate is often unprofitable or thwarted by disagreements among condominium owners. Since low interest rates have kept the opportunity costs of unused apartments low, prices have not been lowered by owners enough to prompt a market shakeout.

We do not expect to see widespread price increases in Swiss Alpine destinations this year. The average vacancy rate in tourist destinations—unlike the nationwide average—will probably not rise, but, given sluggish economic growth in Switzerland and Europe as a whole, neither domestic nor foreign demand seem poised to increase much.

Prices similar to those in neighboring countries

Prices for conventional second apartments in prime vacation destinations in Austria and France are almost at the same level as in the most expensive Swiss tourist regions. Kitzbühel in Austria and Courchevel in France still rank among the Alpine region’s five most expensive vacation spots, with square meter prices just above CHF 13,000. Prices at the most expensive Italian destination, Cortina d'Ampezzo, are around CHF 10,000 per square meter.

UBS Switzerland AG