Price dynamics in Switzerland’s residential-property sector are slowing in the wake of higher interest rates but the market remains vulnerable, according to Swiss National Bank Vice President Martin Schlegel.
Higher borrowing costs are pushing up rents, meanwhile — a factor that could lead to a temporary uptick in inflation, Schlegel said Friday in Lausanne, Switzerland. While price gains are expected to dip back below 2% in the medium term, he reiterated that pressures remain elevated and further rate hikes can’t be excluded.
Schlegel’s remarks to an audience of real estate professionals come after house prices in Switzerland climbed to their highest level in at least six years, feeding concern the market may be overheating. SNB President Thomas Jordan said this month that prices may drop, depending on how rents develop.
Sluggish construction along with a growing population has been driving up residential property costs in Switzerland for years. Hiring by multinationals has attracted many foreigners to the country and has seen home prices in Zurich surge past levels of Paris and London.
The SNB has raised interest rates by 250 basis points in the space of a year, increasing the cost of mortgages. This also drives rents in the Swiss system, as landlords are allowed to partially pass on higher credit expenses to tenants.
Switzerland’s national benchmark for mortgage costs is expected to show an uptick when it’s next published on Dec. 1, which could lead to widespread rent increases.
