by With Swiss rents high and rising it should follow that more would be invested in building new homes. However, that isn’t the case. The newspaper Blick asks experts why. As rents rise landlords should stand to make more from their investments. Many are also quick to assume that higher rents mean landlords are making excessive profits at the expense of renters. However, in practice it isn’t that simple. Firstly, when deciding to invest investors must consider yield. When the value of real estate rises yield – the percentage return on investment – falls, making other investments relatively more attractive. Current high home prices mean that yields, or the percentage of rent to home value, is fairly low. The head of one Swiss property company analysed 10,000 apartments and found the
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With Swiss rents high and rising it should follow that more would be invested in building new homes. However, that isn’t the case. The newspaper Blick asks experts why.
As rents rise landlords should stand to make more from their investments. Many are also quick to assume that higher rents mean landlords are making excessive profits at the expense of renters.
However, in practice it isn’t that simple. Firstly, when deciding to invest investors must consider yield. When the value of real estate rises yield – the percentage return on investment – falls, making other investments relatively more attractive. Current high home prices mean that yields, or the percentage of rent to home value, is fairly low. The head of one Swiss property company analysed 10,000 apartments and found the average rental yield was slightly over 3%, before deducting expenses.
Another more recent head wind for property investors is rising mortgage rates. Until recently, 10-year rates were around 1%. Now they’re around 3%. A 3% cost of finance on an asset with a 3% yield can leave investors with little in the way of net earnings.
Finally, there is the scarcity and high price of land in Switzerland, along with strict building restrictions that often limit building heights in cities.
Together these financial realities are leading more and more Swiss real estate investors to invest their money in other assets.
At the same time a significant number of people continue to arrive in Switzerland driving up demand further. In 2022, Switzerland’s population grew by more than 100,000.
The bitter irony is that to incentivise the home construction required to house Switzerland’s growing population, higher rents may be needed. Higher rents would lead to higher yields and more investment. More constructible land and fewer building height restrictions would also help of course.
Moves to control or cap rents, a demand made by some politicians and rental associations, are likely to have the opposite effect: lower yields that drive even more money out of home construction into other sectors.
More on this:
Blick article (in French) – Take a 5 minute French test now
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