MoneyPark’s Real Estate Risk Index (RERI) fell by 0.3 index points to stand at 3.5 in the fourth quarter of 2020. The barometer therefore weakened, moving from the “slightly marked risk” zone to the “moderate risk” zone. However, the value lies at the edge of these areas and further development remains uncertain.
As in the third quarter of 2020, the strong improvement in the figures and outlook for the Swiss export economy and the stability of domestic consumption are the main contributors to the weakening of risks. The Purchase Manager Index Industry (PMI) shows a value that is again clearly in the growth zone. This is a positive signal. However, confinement (from January 18, 2021) will severely weaken private consumption in Switzerland. In addition, the industrial sector is also likely to feel the negative consequences of the third wave of coronavirus which is spreading around the world.
Some key points
The range of interest rate offers for mortgages remains wide. We are seeing some signs that competitive pressure among mortgage providers will intensify again in the coming months. In addition, given the persistence of the negative interest rate environment, banks are stepping up their lending, that is, financing activities. This situation should continue to exert moderate pressure on the historically high margins of mortgage investors and tend towards lower rates.
Note that over the entire fourth quarter, the range of the 10-year fixed-rate mortgage remains enormous. On the basis of a mortgage amount of 800,000 francs and a ten-year term, the mortgage taker can achieve significant savings on interest charges.
The percentage of mortgages to total assets averaged 58% in the fourth quarter. This does not result in any additional risk for the real estate market. Remember that the limit value is 66%.
In the fourth quarter of 2020, the consolidated supply price index for single-family homes (MI) and owned apartments (PPE) rose 1.7% (largest quarterly increase since 2012). And that’s not all: with an index of 166.2 points, a historic high has even been reached. The strong increase in the fourth quarter is mainly due to the supply prices of single-family homes, which increased by 2.3% (1.3% in the third quarter of 2020), while the supply prices of owned apartments rose only slightly by 1.1% (0.2% in the third quarter of 2020). In times of low mobility and an increase in the home office, single-family homes are preferred by buyers because of their larger living area and their privacy. This led to a 4.2% increase in supply prices in 2020.
MoneyPark experts take a more critical look at the situation of investment properties (buy to let). The price level has reached a problematic level in many regions in recent years and the rental demand is very limited, especially in rural areas. In many cases, this results in an increased risk of vacancy. Nevertheless, the activity of construction of rental buildings remains high. Thus, supply is expected to continue to grow with no apparent increase in demand.
The commercial real estate market (offices, retail) would also present a significantly higher risk than the residential property segment, if construction activity remains at the same level and unemployment increases. The office market has to cope with the drop in demand due to the rise in home office, and in the case of commercial goods, the decline in physical sales at the expense of e-commerce requires further optimization of costs or the closing of businesses. branches.
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