Single-family homes lose appeal in Swiss countryside

Single-family homes are becoming an endangered species in some parts of Switzerland, according to a bank report released this week.

The market for such homes is showing signs of becoming “saturated” in areas away from major city centres, with vacancies rising and many houses unable to find buyers, Credit Suisse’s annual Swiss real estate report says.

This is one of the major findings of the 2010 report, which also predicts that office rents will come under pressure due to an oversupply of commercial buildings.

Anyone looking for evidence that high rents and purchase prices are waning for condominiums in the country’s two biggest cities will not find much solace in the 63-page publication, released on Tuesday.

The bank expects housing in Geneva and Zurich will remain at a premium with no sign of downward pressure on prices there this year.

It’s a different story for single-family homes that are falling victim to a demographic reality: baby boomers are moving out of such houses, as their children leave the nest.

“In places, let’s say, around Lake Geneva there isn’t a problem,” economist Thomas Rieder, one of the report’s authors, told Swisster.

“In regions far away from city centres it will become an issue,” said Rieder, noting that the trend would take some time to fully kick in.

Homes without convenient access to public transport will be particularly affected, he said.

Last year, there were fewer building permits for villas in Switzerland than at any point since the mid-1970s, the Credit Suisse report says.

Vacancy rates will rise in 2010 and prices have fallen steadily for the past four quarters, although they remain too high for young families, who prefer to live in urban areas, the report says.

“Most young people don’t want to live in the countryside,” Rieder said.

The report highlights the fact that Switzerland last year escaped the perils of the subprime mortgage crisis in the US, where easy lending practices to homebuyers without the means to service their debts helped spark a global financial crisis.

Switzerland had a similar crisis in the 1990s, which led to a collapse in real estate prices that took a decade to resolve, Credit Suisse recalls.

But the country learned a lesson from this, and the overall Swiss housing market in particular should be “immune” from the crisis this time round, the bank says.

After withstanding last year’s brief recession, thanks largely to immigration by expats, the market faces fresh challenges, including a slowdown in the influx of foreigners, the real estate report says.

“Rising unemployment, stagnating real incomes, a continuing downturn in immigration and the approaching end of the low-interest period are just some of the threats.”

However, Rieder said strong demand for housing and lack of supply in places like Geneva and the city of Zurich mean that upward pressure on prices will remain.

Areas where there has been new construction away from cities and that lack direct transportation links are vulnerable to price erosion, he said.

Elsewhere across the country Credit Suisse generally sees a “gentle upturn  in vacancy levels and moderate price falls.”

But “in general, you can say that the whole residential property market is in good shape”, Rieder said.

The same can’t be said for the country’s commercial real estate market, which faces weaker demand just as new buildings are coming on stream, the real estate report says.

Many office buildings begun before the economic crisis are only now coming on stream just as demand is weakening, Rieder said.

A lot of projects are just being completed “at exactly the wrong moment,” he said.

“The problem with the commercial real estate market is that it has more cyclical exposure - it is tied more directly to economic growth.”

Credit Suisse estimates there will be a loss of around 9,000 office jobs in Switzerland this year - less than originally expected.

But the oversupply of new office space is expected to boost vacancies and put downward pressure on rents, the bank says.

Investors have already responded to the economic slowdown by slashing their investments in commercial real estate developments, which should stabilize that sector by 2012.

Retail real estate is also forecast to similarly come under pressure, with more new shopping space nearing completion, according to the bank report.

Retailers are facing lower demand as a result of the higher employment and subdued consumer sentiment, yet more retail projects are nearing completion.

“Although the number of large-scale projects being implemented has declined, the massive expansion of floor space in recent years has not come to an end yet.”

Switzerland already has the highest per capita retail space in Europe “and we’re still some new projects,” Rieder said.

The upshot of all this is that the retail sector faces consolidation with some smaller stores expected to go out of business.

While large “hypermarkets”, with 1,000 square metres of floor space or more, are expected to continue to do well, small fruit and vegetable shops and independent, relatively low-volume computer stores are among those likely to fold, Rieder said.