Since January 1, 2025, new regulatory changes have come into force in Switzerland as part of Basel III, which require banks to have higher capital requirements. This has a direct impact on investors and owners of investment properties as well as developers of new construction projects, as financing will become more expensive and more difficult to access. Highly leveraged projects are particularly affected, as banks demand higher collateral and impose stricter conditions on riskier loans.
Impact on the Swiss real estate market
The Basel III reforms aim to increase the stability of the financial system. For investors, however, this means higher financing costs and stricter lending criteria. According to Zürcher Kantonalbank (ZKB), these developments could have a significant impact on the market for investment properties, as banks will have to hedge their risk positions to a greater extent.
Despite the tighter financing conditions, construction activity currently remains stable, particularly due to the continued low interest rates. In the long term, however, stricter capital requirements and rising financing costs could lead to a change in the dynamics of the real estate market. A slowdown in construction activity or more selective lending could have a negative impact on the supply of new residential and commercial properties.
Stricter lending criteria for investors
With Basel III, banks are taking a much more cautious approach to lending. The increased capital requirements are forcing financial institutions to tighten up their risk assessments. For investors, this means
- Higher capital requirements – Increased capital requirements already apply in Switzerland, particularly for loan-to-value ratios above 66.67% (two-thirds limit). The new Basel III adjustments may make these even stricter.
- Stricter credit checks – financing is becoming more difficult to access, refinancing more complex.
- Higher interest rates and financing costs – This reduces the profitability of investment properties and makes new construction projects more expensive.
- Rising real estate prices – developers pass on increased financing costs to buyers, which can slow demand.
- Longer review processes – banks have to carry out more extensive risk analyses, which can delay loan approval.
Highly leveraged projects and high-risk properties, such as commercial properties or properties with uncertain rental income, are particularly affected.
Effects on investment properties
Owners and investors of investment properties are particularly affected by the Basel III reforms. In future, mortgages with a loan-to-value ratio of over 66.67% will require banks to deposit significantly more equity. This will increase financing costs, which in many cases will be passed on to customers, resulting in higher mortgage interest rates and stricter lending conditions for investors.
In addition, banks are becoming more restrictive in granting loans or demanding additional collateral when loan-to-value ratios are high. This makes refinancing existing properties or purchasing new properties more challenging.
Challenges for new construction projects
The new regulations also have a significant impact on the financing of new construction projects. Construction loans are considered riskier and are subject to stricter capital requirements. Banks are therefore only granting them more restrictively or charging higher interest rates.
Despite the lower key interest rates, financing new builds remains expensive. Market analysts expect a possible interest rate cut to 0.25% in March 2025, but this will not directly offset the effects of Basel III on financing. This means that without a significant price increase, many new construction projects will not be profitable.
In practice, this means that fewer new apartments are being built and placed on the market. The shortage of supply is likely to contribute to rising real estate prices in the medium term. Project developers should factor the increased financing costs into their calculations at an early stage and examine alternative financing models. Close cooperation with financial institutions can help to find suitable solutions.
Adjustment of financing strategies for investors
In order to operate successfully under the new conditions, investors should rethink their financing strategies:
- Increase equity ratio: A higher equity ratio can secure better credit terms.
- Examine alternative financing models: Crowdfunding, mezzanine capital or institutional investors can offer new opportunities. However, investors should seek advice on regulatory requirements and tax implications before using such financing models.
- Early cooperation with financial institutions: Close coordination with banks can help to develop individual solutions.
Maintain flexibility with interest rates: The choice between fixed and variable rate mortgages is becoming more important as the interest rate landscape changes under Basel III.
Conclusion
The Basel III reforms will bring significant changes for all players. Stricter financing conditions and rising interest rates are making access to credit more difficult, while new construction activity is likely to decline due to higher costs.
In order to adapt optimally to these new conditions, mortgage holders and investors should rethink their financing strategies at an early stage. This includes increasing the equity ratio, optimizing creditworthiness and carefully selecting the type of mortgage.