The changes in the real estate market are unmistakable. During the negative interest rate period, real estate was a sought-after investment that promised profits and transactions were possible without in-depth knowledge. In the current interest rate environment, all real estate segments and locations are coming under pressure. The days of traditional real estate brokerage are over; today’s real estate sales demand more.
Expected price corrections in residential property
Property prices in Central Switzerland, Ticino and other regions fell by over two percent year-on-year in the second quarter of 2023 The Real Estate Price Composite Index, which reflects the price trends of various types of real estate in an overall value, confirms this trend and shows a downward movement. This trend can be observed for all real estate segments in all locations. A further price correction is expected, particularly for single-family homes, which have been in high demand to date. There are also signs that interest among buyers is waning.
A composite index reflects the changes in the value of property in Switzerland. For example, a composite index for property takes into account the prices, sales volumes and rental yields of different types of property in different regions.
There are several reasons for the declining interest in home ownership. On the one hand, the current interest rate situation plays a role in making the purchase of real estate less attractive. On the other hand, affordability – i.e. the financial feasibility of purchasing a property – is more difficult for many potential buyers to achieve. In addition, there is growing uncertainty regarding the value of real estate. Many people are wondering whether their investments will retain their value in the future or whether they should expect real estate prices to fall.
Source: Wüest Partner
The chart shows that demand for residential property has been falling steadily since mid-2021, while the number of new listings is slowly increasing.
Experts predict falling prices
Market experts are forecasting falling prices across all real estate segments, regardless of region and location. The survey conducted by the renowned consulting firm KPMG
around 350 real estate investors and valuers in the Swiss real estate investment market took part. The survey participants represent an investment and valuation volume of around CHF 350 billion.
The majority of respondents expect a negative price trend in peripheral locations, while a significant number of respondents also expect reductions in central locations.
Excessive valuations and lack of transactions
The marketing of investment properties is currently one of the biggest challenges. One of the reasons for this is that many properties are reported at too high a value by major investors such as insurance companies. Due to the changing interest rate environment and the increasing attractiveness of other investment options, such as bonds, the value continues to fall. As a result, many planned real estate transactions are not taking place.
The results of the latest Swiss Real Estate Sentiment Index (sresi®) survey paint a clear picture: Swiss investment real estate is facing uncertain times. Although expectations regarding economic development for the coming year are somewhat more positive than in the past, a negative price development assessment indicates that a worrying low has been reached. On the other hand, there is the challenge of the falling vacancy rate. The population continues to grow and there is a housing shortage, which in turn can offer new opportunities for investment properties.
The time of classic real estate brokerage is over
It is no longer enough for real estate companies, brokers and agencies to bring buyers and sellers together. In addition to pure brokerage activities, customers today expect comprehensive advice based on market analyses, innovative technologies and in-depth industry knowledge. Constantly evolving digitalization opens up a wide range of opportunities to increase efficiency, be it through virtual viewing tours, automated processes or the targeted use of artificial intelligence to determine prices. Forward-looking real estate companies, such as Properti, are characterized by a deep understanding of the specific needs of their clientele and the ability to respond proactively to market changes.
The real estate sector is experiencing significant changes as a result of the changed interest rate environment, which is putting pressure on prices in all segments and regions. Experts expect prices to continue to fall and conventional brokerage strategies to become less relevant. Modern real estate marketing today requires sound advice that puts data and analyses into context, sees artificial intelligence as an everyday aid, uses advanced technologies and brings industry knowledge and a strong network ecosystem to the table. Despite the current challenges, there are opportunities that need to be seized.
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