Let the good times roll

PUBLISHED : Wednesday, 07 December, 2011, 12:00am
UPDATED : Wednesday, 07 December, 2011, 12:00am


For a nation with a reputation for running their country as efficiently as they build their clocks, Switzerland's property market isn't exactly running to schedule. Far from following an orderly pattern, prices countrywide have risen relatively slowly since 1995.

However, the prices of homes in Geneva are exploding and in the financial centre Zurich, where it helps to be a millionaire. The other place where prices are steep is the Swiss southern Alps, including Graub?nden and Ticino, where prices have been exceeding earnings by a healthy margin.

Six months ago the Swiss National Bank (SNB) and the financial regulator issued warnings of the possible consequences if property prices continued to rise and there was no shortage of analysts predicting a property crash.

But today several leading financial institutions say that, without any major ructions in the Swiss economy, there is no imminent danger of prices collapsing.

Nationally, prices in Switzerland are growing by 5.2 per cent year on year, the reasons commonly offered include increasing immigration, historically low interest rates and an economy that is missing out on the ravages elsewhere in Europe.

But in Geneva, those prices are up an average of 11.6 per cent a year, that's overheating on a scale last seen in the United States, just before the property crash. Although Zurich is not short of buyers with deep pockets, it is in Geneva that you will need a million Swiss francs (HK$8.44 million) to buy even a modest two-bedroom apartment and double that to live in a modest villa.

The numbers appear to indicate that what has gone up, must surely come down, but while earlier this year leading global financial services company Credit Suisse predicted that property prices were sure to hit a 'wall', in its latest report it is more circumspect.

Chief economist Christian Kraft explains: 'The Swiss market is not confronted with a nationwide real estate price bubble, but with regional hot spots. Especially in the Lake Geneva conurbation, in parts of the canton of Zurich and in some tourist destinations in the Alps, prices have reached levels which we do not consider as sustainable any more. But even in these regions, price corrections are unlikely as long as interest rates, which foster the demand for property, remain at a record low level and migration-driven demand stays high.'

International estate agency Knight Frank is also of the view that property, even in the exclusive regions, is not about to take a major tumble. Alex Koch de Gooreynd, head of the Swiss desk, says: 'Having just returned from Geneva, the consensus is that there is no indication of the bubble bursting. We are seeing prices beginning to cool at the top end of the market due to the fact that people are becoming more motivated to sell and adjusting prices accordingly.'

The company's latest research into the Swiss market even predicts more growth as the country has the lowest interest rates of the developed nations and international buyers have been lured into the market by the SNB capping the Swiss franc.

It helps that Switzerland's nationals have a taste for the best things in life and those tastes are not just for chocolate. The country is home to 573,000 millionaire households with that number set to more than double by 2020. That will make Switzerland home to the third highest density of millionaire households in the world, 24 per cent of its total population.

For the very rich, Zurich is every bit as appealing as the global hot spots of Hong Kong and New York. Frank Knight's research has rated the city third in buying preferences for its customers across three categories: for education (after London and Boston); for tax (after Grand Cayman and the Channel Islands between Britain and France) and for security (after Monaco and Geneva).

But while Switzerland's central location, good transport links to key markets, highly skilled workforce and strong financial centre are big pulls to the super rich - it remains largely off the radar when it comes to buyers, and companies from Asia.

Koch de Gooreynd says: 'There is still healthy interest from UK-based and euro zone buyers. We have seen an increase in Russian buyers who are tempted by the strong performance of the Swiss franc and the relatively safe economic environment along with international schools and the lifestyle that Switzerland offers. There has been a slight increase in Asian buyers but this has not been huge compared to the euro zone and Russian interest.'

He says that this is mainly due to the Swiss property laws which essentially mean that buyers have to be European nationals or Swiss residents in order to buy.

However there are reports that the so-called Lex Koller law, which was to have been abolished, is being flouted by unscrupulous Swiss lawyers who have been colluding with Russian and Chinese to illegally snap up prime villas.

It is also possible for a Swiss national to set up a business, buy property in the name of that company and then transfer corporate ownership to a foreigner. The foreign ownership of the property then slips through the gaps.