Interest rates fall Buying a house is suddenly worthwhile again - but not for everyone
Three interest rate cuts by the Swiss National Bank have changed the cost ratios in the real estate market: For many Swiss people, buying a property is once again becoming a cheaper alternative to renting.
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- Interest rate cuts by the Swiss National Bank are making home ownership increasingly financially attractive compared to renting.
- Demand for home ownership is rising, which is reflected in an increase in search subscriptions for real estate of around 21 to 22 percent compared to the previous year.
- Despite the attractive return on equity and long-term value stability, buying a property remains difficult for many due to the high purchase prices.
Three successive interest rate cuts by the Swiss National Bank (SNB) have noticeably changed the real estate market: Home ownership is once again becoming more attractive than renting for many. "If you take into account all ongoing costs such as interest, maintenance and tax effects, ownership is once again the more affordable form of housing for new buyers," says Fredy Hasenmeile, Chief Economist at Raiffeisen Switzerland.
According to his estimates, buying a home currently offers a financial advantage of up to 16 percent compared to renting - depending on the mortgage term.
The demand for home ownership is increasing
Between mid-2022 and mid-2024, renting was cheaper in the short term due to the rise in interest rates. However, demand for home ownership is now rising sharply: According to Raiffeisen, the number of search subscriptions for single-family homes and condominiums rose by around 21 and 22 percent respectively compared to the lows of around a year ago.
The SNB is expected to cut interest rates again on December 12. "Based on our forecasts, housing cost savings of up to 25 percent could soon be possible by buying your own home," predicts Hasenmeile.
Study shows: buying is cheaper than renting
In a new study, Raiffeisen examines whether buying real estate is worthwhile from a purely financial perspective or whether investing in the financial market and renting would be more advantageous. The calculations are complex, as factors such as interest rate trends, construction costs, imputed rental value, tax deductions, property gains tax, proportion of borrowed capital and type of mortgage all play a major role.
Yields on residential property could remain attractive: According to Raiffeisen, the average return on equity for real estate owners since 1988 has been 7.2 percent annually - just below the 8.1 percent of a Swiss equity portfolio. Even though returns have been affected by fluctuations, the return on equity for real estate remains stable and less volatile compared to equities.
Raiffeisen points out that the actual return on equity is usually lower in practice. The reason for this is that owners are rarely able to optimally coordinate the loan-to-value ratio, mortgage and renovations. Nevertheless, the annual return on equity remains considerable even under realistic assumptions - an average of 5.7 percent per year.
Despite attractive prospects, hurdles such as rising real estate prices remain
Fredy Hasenmeile remains optimistic: "Under realistic assumptions, similar returns can be expected in the future," he estimates. From a long-term perspective, home ownership is therefore "practically on a par with equity investments".
"Home ownership is very similar to a popular share," says Hasenmeile. However, the biggest advantage of home ownership over shares is that its illiquidity forces owners to think long-term, remain invested and simply ride out times of crisis. This pays off in the long term.
This is an attractive prospect for potential buyers. One hurdle remains. The continuing rise in real estate prices is making it difficult for many people to even afford the dream of owning their own home.
