Economic Outlook

Following a marked recovery, which continued until mid-2004, the Swiss economy has cooled significantly. Nevertheless, the parameters are still reflecting a positive image of the construction and property market. Interest rates, which are at an ongoing record low, are stimulating the residential building sector. The cooling off is demonstrated by the decline in exports mostly and responsibility lies with the weakness of the EU economy. Consumer spending and investment activity, however, remains fairly stable.

Property shares

According to the Rüd Blass property fund index, investment in property in the reporting period from July 2005 to June 2005 outstripped the whole of the share market. Weighted according to net fund assets, the index advanced by 11.5 per cent within the twelve-month period by comparison with 5.5 per cent over the preceding year. In the same period, the Swiss Performance Index rose by 14.1 per cent.The SPI sub-index Real Estate of property company shares quoted on the SWX rose by 24.5 per cent by comparison with 20.3 per cent in the preceding year.

Interest rates

Contrary to expectations, interest rates have remained at a low level, from which the property market has continued to profit.The average rate in the cantonal banks for new and old mortgages was 3.20% at the end of June, more than 20 base points under the average value for 2003. The stability is remarkable - on the basis of month-end values the rate fluctuated by no more than 2 base points within one year.

Inflation

The moderate growth in the national consumer price index contributed to low interest rates. In June 2005 the rate was just 0.7 per cent above the comparable rate for the preceding year, but not as low as the rate since April of the preceding year. Prices were principally driven by the price of crude oil products, the most noticeable being increased heating and fuel prices.

Property prices

The index of residential property prices published quarterly by the Swiss National Bank persisted at 342.1 points at the end of the second quarter, an increase of 3.6 per cent over the value for the previous year. This is the highest point since 1996. The most significant aspect is the increase in the regions of Lake Geneva and the West of Switzerland. By contrast, the markets in the East, North-West and South of the country developed only slowly. According to the National Bank indices, the market for commercial surfaces had declined again in the middle of the year. Office premises stood at 224.6 (-1.5 per cent), whilst commercial premises stood at 215.6 (-2.0 per cent). Market development continues to be marked by an excess of supply over demand, although, once again, there are very significant regional differences. Whereas the Zurich region continues to suffer considerably from the excess, the Basle region is showing a clear recovery.

Construction activity

The reinvigoration of construction activity continued in 2004. Residential construction projects stood at CHF 20.1bn by comparison with CHF 18.2bn in the previous year. Overall in 2004, 36,294 new dwellings were erected, of which 185,217 were under construction and 46,716 had obtained planning permission.This trend continued during the first quarter of 2005. According to the figures of the Federal Statistical Institute, 8065 new dwellings were erected in the first quarter, 23.3 per cent more than in the previous year. The under construction and permitted building figures, however, were slightly down at the beginning of the year. At CHF 6.3bn, construction activity in the industrial, trade and service areas have declined markedly from the previous year’s value of CHF 7.3bn.

Construction prices

Brisk activity was also reflected in construction prices, which are moving further and further away from the doldrums of 2003 and 2004, whilst at the same time showing marked differences in regional development.

Rental prices

The numbers of empty apartments persisted in 2004 at a rate of 0.91 per cent nationwide, a low which has not been seen since 1993. It may be that this rate will rise slightly again this year by reason of the continuing increase in the production of residential apartments and ongoing economic stagnation. The most marked situation is the continuing excess of demand in the Geneva (0.15 per cent), Basle (0.40 per cent and Zug (0.41) cantons, whilst Lake Geneva has developed over the last few years to achieve a doubtful peak position at 2.32%.

According to the BFS-Rental price index from April 2004 to April 2005, rental prices have increased by 1.7per cent.This trend has been ongoing in all residential categories for around five years now. Prices increased by 1.2 per cent for the 2004 calendar year. Whilst prices for studio apartments declined slightly, larger rental properties reflected a price increase of between 1.5 per cent (three-room apartments) and 2.6 per cent (five-room apartments). In the near future, a small increase in sales prices can be assumed, because of continuing constraints on supply in certain agglomerations. Based on demographic development as well as the general economic situation, prices of apartments can be anticipated to rise more strongly than those of family homes.

Unsurprisingly, the largest increase in prices were seen in the area of Lake Geneva. Between the second half-year of 2003 and the second half-year of 2004, prices there rose by 4.9 per cent from an already high level. At 1.3 per cent, the lowest price rises were found in the Bern region.