The Swiss holiday home market has been sold empty

Two years of Corona have brought the Swiss holiday home market to a point that was unimaginable before the pandemic.

In the Jungfrau region, where this chalet is located, the prices for holiday apartments have risen the most over the past year, with an increase of 16 percent.

Peter Klaunzer / Keystone

What a difference a few years can make: as recently as 2018, UBS’s annual holiday home study stated that second homes were by no means in short supply, despite the second home initiative adopted by the electorate in 2012. Today is in the latest edition talk of a «bought empty market».

The reason for the completely opposite assessment four years later is the corona pandemic, which nobody expected: This has not only changed the primary home market. Thanks to the new possibilities of location-independent working, holiday apartments suddenly became more attractive because they could be used much more frequently and also for work. Because less money could also be spent on other luxuries such as travel or dining out, people increasingly considered buying an apartment or house in the mountains.

Suddenly everyone was looking for vacation rentals

Google searches for «buy a holiday home» and «second home»*, Index 2018 = 100

Higher prices across the board

The impact of this boom in demand on prices is impressive. According to UBS, square meter prices for second homes in the Alps have risen by around 15 percent since the outbreak of the pandemic. At around 10 percent, the price increase in the second year of the pandemic was even significantly higher than in 2020 (+3 percent).

The price increase has accelerated at home and abroad

Annual change in holiday home prices in the Alps, in %

Germany, Austria

According to UBS, what is new about the recent price hike is that it included all 42 Alpine destinations analyzed by UBS, from luxury St. Moritz (+10.8 percent) to medium-priced destinations such as Arosa (+16.8 percent) to inexpensive ones holiday resorts such as Evolène in Valais (+12.8 percent).

All destinations in the Alps have become more expensive

Average price per square meter for a holiday apartment, in CHF*

Strong population growth in mountain cantons

There is probably another trend behind this. The decoupling of place of work and place of residence not only led to more second homes being bought in the mountains. Many households even moved their primary residence to the mountains.

This can be seen, among other things, from the fact that the population in the mountain cantons grew by almost 1 percent in 2021, twice as fast as before the corona pandemic. For the first time in more than 15 years, the population growth in the mountain cantons was also higher than the average for all other cantons, as the UBS writes.

The mountain cantons are becoming more attractive places to live

Population growth in the mountain cantons* and in other cantons, in % compared to the previous year

Extremely sparse offer

In addition to the higher demand, another factor also caused the sharp price increases: the tight supply. In Switzerland, this is not least due to regulatory reasons: Due to the second home initiative adopted in 2012, practically no new second homes have been allowed to be built in tourist regions since 2012. Accordingly, only 0.25 percent of the existing stock of new apartments were approved for construction last year in Swiss holiday destinations – primarily first homes – which corresponds to a long-term low.

At the same time, less used properties came onto the market because many holiday home owners postponed their sales plans or even gave up because they were now able to use their property much more frequently by working from home.

The supply of available properties thus fell further. Less than 1.5 percent of the housing stock is currently on offer in holiday regions in Graubünden, Bern and Central Switzerland. In Valais and Vaud, the supply quotas are significantly higher at an average of 6 percent, but are still well below the previous year’s values.

In addition, many holiday properties in these two cantons do not meet today’s standards, as the UBS writes. They are difficult to sell without complex and expensive renovations; at least not at the prices that the sellers imagined. Overall, the average vacancy rate in the Swiss holiday regions analyzed fell from 2.9 to 2.1 percent within a year.

Prices continue to rise, but not as much

And what’s next? Will prices rise even more, or will the situation calm down soon? UBS believes that vacation rentals will actually become even more expensive this year. But according to the bank economists, the price surge should not be as strong as in 2021. A value between 4 and 7 percent is expected.

Several factors point to a weakening of inflation. The first is the already high price level. In general, the following applies: the higher the price level, the smaller the potential demand group that meets the affordability criteria for external financing.

For example, if a second home cost 860,000 francs before the corona pandemic, the current price is 1 million francs. With a loan-to-value ratio of 60 percent, an average of 55,000 francs more equity and 20,000 francs more income are required today than two years ago.

Effect of the turnaround in interest rates

However, as the past year has shown, it is by no means certain that high real estate prices will slow down the market on their own. Other factors can neutralize or override this effect. In 2021, these were the extremely low interest rates. They made it possible for those who qualified for debt financing to finance their holiday home extremely cheaply.

In the past few months, however, interest rates for fixed-rate mortgages have risen significantly, so that the capital costs for buying a holiday home have almost doubled since the beginning of the year. In the example of a property that costs one million francs, according to UBS, the costs for a 10-year fixed mortgage are currently around 20,000 francs a year. As a result, the attractiveness of buying a holiday home as a capital investment has deteriorated significantly.

Another possible braking factor is the rise in energy prices and the cost of building materials. All things considered, the total usage costs (capital, operating, maintenance and investment costs) of an average holiday home are likely to be a good third higher next year than they were before the start of the second home boom in 2020.

As UBS has calculated, the use of a holiday apartment costs between 2,300 and 3,500 francs per week for an effective annual period of use of around eleven weeks.

Conversion of primary residences

Even on the supply side, movement is still possible despite the Second Homes Act and the de facto construction freeze. UBS believes that more second homes are likely to come onto the market again this year as some holiday home owners are taking advantage of the current boom to realize capital gains and avoid the cost of upcoming renovations.

There are also signs that locals are increasingly selling old-law apartments as holiday homes. According to UBS, when selling a previous first home as a second home, an average premium of around 15 percent can be expected.

source site-111