Real Estate Construction To Return In the Medium Term: Study Finds

Real Estate Construction To Return In the Medium Term: Study Finds

Thu, Apr 25th 2024

While rising interest rates have initially dampened construction activity in Switzerland, medium-term prospects appear brighter due to economic adjustments.

KEYSTONE/Ennio Leanza

Higher interest rates generally have a negative impact on construction activity. Higher interest rates mean higher financing costs and lower real estate prices. In the medium term, however, this should pick up again in Switzerland, according to a study.

For the construction and real estate market, key interest rates, yields on Confederation bonds and mortgage rates are the key interest rate factors.

Higher interest rates are slowing down construction activity and thus also the growth of the real estate portfolio. These are the findings of a study commissioned by the Federal Office for Housing (FHO) and conducted by real estate consultancy firm Wüest Partner and published on Thursday.

These effects are currently barely visible in the data due to delays in data availability, but are already evident in reality, according to experts.

Incentives to Promote Construction

Rising mortgage interest rates also lead to higher rental income via the reference interest rate. This has a stimulating effect on real estate prices and could therefore also influence construction activity.

If the vacancy rate continues to fall and rents rise, this will also result in a greater economic incentive to build additional apartments.

The slower growth will result in falling building land prices, which in turn will make construction more economical in the medium term, the study continues. This development has already begun. Building land has recently become cheaper again in Switzerland.

Residential construction activity is therefore likely to pick up again in the medium term. This is because interest rates are currently still low by historical standards and the Swiss National Bank has already lowered the key interest rate from 1.75% to 1.5% in March 2024.

The high level of immigration is also boosting construction activity.


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