Swiss Property vs UK Property
Switzerland is commonly recognised as one of the most wealthy countries in the world, with a GDP per capita of $83,832 according to the World Population Review and a population that has the highest average income across the globe. Compare this to the UK – which has a GDP per capita of $45,491 and doesn’t make the top ten for income. There’s really no competition. Comparing relative property markets shows a completely different story. UK property is regularly considered one of the most attractive investment markets because of the stability and returns it can provide. In fact, during 2018, European investment into the UK made up 40% of the market, putting the UK firmly at the top of many European’s wish lists for 2019. So how do the markets measure up when we look at Swiss property vs UK property?
Swiss Property Prices vs UK Property Prices
The Swiss property market’s performance during 2018 tells a different story compared to the UK – Zurich experienced some of the lowest rental yields of a major European city in 2018. Property investment in Switzerland is a hugely competitive market and much less accessible than some of its European counterparts, often requiring a much higher initial cost.
Directly comparing property in Switzerland and the UK brings up some interesting figures. Due to its reduced size, Switzerland has a much lower range of assets available compared to the UK, meaning a much more competitive market that has driven property prices much higher.
The average Swiss property in Zurich (considered one of the most expensive cities in the world) costs around CHF 1,620,000, which equals £1,322,005. Moving further out, cities such as Geneva (CHF 1.44 million) and Lausanne (CHF 1.2 million) remain fairly costly – demonstrating just how expensive the wider Swiss market is.
Despite these rising property prices, Switzerland still delivers a weaker rental yield than the UK. With yields generally hitting around 2% – 4% in Switzerland, the UK market delivers a higher average of around 4% – 5%.
Also consider that the average UK property price in some of the bigger regional cities sits at around £200,000 (Birmingham), £169,000 (Liverpool) and £189,000 (Manchester). These prices alone make it easy to understand why Swiss investors often look overseas for their investments, particularly when favourable foreign exchange rates can often mean better value within more affordable markets.
Growth has also been much stronger in the UK between 2000 and 2016, despite Switzerland seeing substantial price increases. Swiss property rose by around 80.5% in those 16 years, while the UK saw price rises of 144%. However, the Swiss markets relative lack of affordability and the rise of the Swiss currency against the Euro means Swiss real estate has seen much less demand from foreign investors.
Swiss Market Demands vs UK Market Demands
So what is the Swiss investment market looking for that’s different to the UK market? The short answer? Not much. Both markets are showing increased demand for quality above all else, particularly in the face of undersupply in key city centres. Even when economic momentum in both the UK and Switzerland is slowing, rental demand continues to grow and exciting development pipelines are still in motion. This highlights the need for quality developments in a competitive sector.
Quality residential space tends to attract quality tenants, reducing the potential for vacancies and maintaining a consistent income. This concept of ‘quality first’ seems to fit with the rising Swiss trend of prioritising floorplans. The ‘Swiss Real Estate Market 2019’ study by Credit Suisse showcased the importance of floorplans and layout for both investors and tenants, a huge change for an aspect of investment that was previously neglected.
Comparing Homeownership in Switzerland and the UK
Buying property and general property trends in Switzerland are also very different compared to the UK. Levels of homeownership in Switzerland are low (around 60% of Swiss residents rent their property), mostly driven by limited housing stock, rising prices and restrictions that delay property purchases.
The UK is a very different story. Renters only make up around 25% of the housing market but it’s a figure that is rising fast. As Generation Rent comes into play – driven by affordability challenges and a priority on flexibility – we’re seeing homeownership levels in the UK drop. It’s expected by 2039, renters will outnumber homeowners in the UK market, demonstrating the pivot to a more ‘European’ approach to home life.
You’d expect investment demand to be high in both countries then, especially with the rental market making up such a large proportion of the wider housing sector. However, foreign demand for Switzerland faces several strict restrictions that hamstring investment. You can only buy property in Switzerland if:
- You are an EU national with a Swiss residence permit who resides in Switzerland.
- You hold a Swiss C Permit
In both of these cases, you essentially have the same rights as a Swiss citizen – allowing you to purchase property, investment properties, holiday homes or commercial premises. If you hold a lower class permit, you can only purchase a property to live in.
With this in mind, overseas investors and expats may face difficulty buying a property, especially as non-resident foreigners and foreign residents without a Swiss work permit will have to go through a lengthy approval process – licensing differs from region to region but many ‘cantons’ prefer you have lived there for five years or more.
It also doesn’t help that Swiss banks are moving to tighten lending conditions on people buying property as an investment rather than as a residence. For those purely investing in property, 25% of the value of the loan must be given as a down payment before they can even get a mortgage. On top of this, a third of the loan has to be repaid within ten years. Driven by the threat of rising property prices and following on from warning shots by Swiss financial regulators, it’s clear once again that the UK market poses much less of a challenge for investors.
When all of the above is taken into account it’s easier to imagine why such a large majority of European investors, particularly from Switzerland, are looking to the UK for their next investment. Business links between Switzerland and the UK remain strong – bilateral trade is worth almost £31.7 billion a year – and foreign exchange rates mean Swiss investors can leverage their income against a weakened Sterling, presenting the opportunity for incredible value.