The Swiss Federal Office for Housing (OFL) has issued a warning regarding rent increases in the Swiss housing market, projecting annual hikes of 3% to 5% in the coming years. This trend is primarily driven by a persistent imbalance where demand significantly outstrips supply, a situation exacerbated by stagnant construction activity. Consequently, vacancy rates have fallen to a decade low, creating a highly competitive environment for tenants and favorable conditions for landlords.

Experts anticipate that the housing shortage will intensify over the next two to three years due to a scarcity of planned new construction projects. The gap between advertised and existing rents is widening, diminishing the incentive for tenants to move. Tourist regions like Valais and Grisons are particularly impacted by price increases due to strong demand for investment properties and secondary residences. Zurich, in particular, is experiencing substantial rent hikes, with some areas seeing double-digit growth.

Market Signals

Sector-Wide Implications: Advertised rents rose by 6.3% year-on-year in Q2 2024, with forecasts predicting a 4.1% increase for 2024. Property prices for apartments and houses also saw increases.
Competitor Positioning Changes: Property owners and investors are benefiting from scarcity and enhanced rental yields. Companies that can increase housing supply or offer competitive pricing will gain an advantage.
Stock Movements, Currency Impacts: Rising property prices could exert upward pressure on construction material costs. The Swiss franc's stability as a safe-haven currency may attract foreign investment.

Winners & Losers

Winners: Property owners, landlords, developers, and investors in the Swiss real estate market. Companies involved in property management and construction may also see increased demand. Losers: Tenants, especially those with lower incomes, will face higher housing costs, potentially impacting their overall spending power. First-time homebuyers will find it more challenging to enter the market.

Action Timeline

Immediate: Opportunities for investment in residential real estate, while monitoring regulatory risks.
Short-term: Develop capacity to increase housing supply to navigate competitive market conditions.
Long-term: Monitor potential regulatory changes concerning rent controls and building regulations.

Risk Assessment

Regulatory Risks: Potential for rent caps or stricter building regulations, as seen in cantons like Geneva and Basel.
Market Volatility Factors: Global economic uncertainties and geopolitical tensions could introduce volatility.
Affordability Crisis: Persistent rent and property price increases raise concerns about housing affordability for tenants.
Construction Cost Increases: Rising costs of materials, labor, and energy could further constrain new construction.