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PROPERTY

Where in Switzerland is renting cheaper than buying right now?

For years, buying a property in Switzerland was considered to make better financial sense than renting. But in a number of municipalities this is no longer the case, a new analysis reveals.

Where in Switzerland is renting cheaper than buying right now?
Depending on where you live, renting may be cheaper than buying. Image by F. Muhammad from Pixabay

Owning a home — if you can afford to buy one in the first place — is usually cheaper than renting in a long run, as mortgages are tax deductible, and most rents aren’t. Generally, renting in Switzerland costs almost 20 percent more than buying.

For instance, a report by Raiffeisen Bank found that buying a house in Switzerland can save a considerable amount of cash over time – particularly for families. 

However, this particular report was written in 2020 and reflected the situation on the property market as it was at then.

A more recent study, carried out earlier in 2022 by Credit Suisse, shows that for the first time in 13 years, renting is actually a cheaper option than buying  — at least in the short term.

READ MORE : Buying property versus renting in Switzerland: What is actually cheaper?
 

The reason for this reversal is that fixed-rate mortgages have become significantly more expensive since the beginning of 2022 due to inflation.

While previously the price of Swiss land and properties was high, mortgage interest rates were among the lowest in Europe.

For instance, at the end of December 2021, annual interest rates for five-year fixed mortgages were 0.97 percent, and 1.17 percent for 10-year terms, according to Moneyland consumer site.

By the end of June, however, rates rose to 2.57 percent and 2.99 percent for five and 10-year terms, respectively.

However, while the interest rate is an important reason for the current costs, “the price of land makes a massive difference” as well, according to Donato Scognamiglio, managing director of IAZI property consultants.

“In the urban areas, where people like to be and the density is high, you pay an enormous amount for land”, he said.

This means that for many people who are looking to purchase a home now, renting may be a cheaper option than buying, at least in some Swiss regions.

What’s the situation in various cities and areas?

In 451 communities where renting was more expensive than buying a year ago, the situation is now reversed, according to a cost analysis by SRF public broadcaster.

The difference is most striking in Zug, where a number of international companies are located: buying a property in the tiny canton is now at least 55 percent more expensive than renting.

Similar trends are found in other notoriously pricey property markets: in Zurich, Geneva, and Basel, buying a home now costs 35 percent more than renting. This tendency is also seen in Lausanne, Lugano, St. Gallen, and Chur.

Not surprisingly, given that they are the most expensive cantons (and real estate markets) in Switzerland, Zurich and Geneva have the highest price tags for properties.

“Zurich is such a sought-after location, it was difficult to find any properties there even before the interest rate hike”, Scognamiglio said. “Now it’s even clearer that you have to rent”.

Buying in Zurich municipalities of Oberrieden, Küsnacht, Zumikon, Kilchberg, Rüschlikon, Thalwil, Erlenbach, Herrliberg, Meilen, and Zollikon is now between 45 and 50 percent more expensive than renting.

As for Geneva, “buying is up to 30 percent more expensive than renting in the communities around the second largest city in Switzerland”, SRF said.

While that may well be, rents in Geneva are also high, compared to other Swiss municipalities. This is because the land for new constructions is limited by the canton’s geography — it is wedged between France and Lake Geneva — while the demand is growing steadily,

READ MORE: Why is Geneva’s rent the highest in Switzerland?

If you have your heart set on owning a dwelling rather than renting one, your best bet is to look beyond the cities and their immediate suburbs.

Generally speaking, buying in rural areas or small, non-industrial cantons, is cheaper than renting, because prices there are significantly lower.

As an example, Jura has the least expensive building land, followed by Solothurn and Glarus, according to Moneyland.

A map on the SRF site shows where it is currently cheaper to rent than to buy, and vice-versa.

READ MORE: Renting now ‘cheaper than buying’ in Switzerland
 

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PROPERTY

Is now a good time to buy property in Switzerland?

Real estate — single-family houses as well as apartments — are not exactly cheap in Switzerland at any time. But their cost can go up or down, depending on the mortgage rates.

Is now a good time to buy property in Switzerland?

Geneva and Zurich have traditionally been — and still remain — the most expensive markets for home buyers not only in Switzerland, but among the priciest in Europe as well.

Prices are also high in Basel, Zug and Lausanne, that is, urban centres with a high concentration of multinational companies and residents.

One major reason for such high real estate prices is scarcity of land.

Switzerland is a small country with little land left to be developed, and the development of whatever land is available is strictly regulated; for instance, agricultural land can’t easily be used for construction.

And as Switzerland’s land is not expandable, “residential real estate will continue to appreciate in value”, Stefan Fahrländer, chairman of the board of Fahrländer Partner, a real estate consultancy firm in Zurich, said in an interview.

That is a reason why most people in Switzerland are tenants rather than owners.

However, while the prices of land in high-demand areas hardly ever drop (if anything, they go up), they may be more affordable if mortgage rates are really low.

For instance, at the beginning of 2021, a 10-year mortgage cost 1.1 percent on average across the country. Currently, 10-year rates stand at 2.90 percent.

“Mortgage rates have risen extraordinarily strongly since the beginning of the year”, Felix Oeschger, analyst at Moneyland, an online price comparison service, told The Local.

READ MORE: This is where you can buy cheaper properties in Switzerland

Why is this happening?

Blame it on inflation.

Although Switzerland is doing better on this front than other countries, with the inflation rate much lower than across the eurozone, prices of consumer goods —including mortgages — have risen here nevertheless

As to how long it will take for mortgage interest rates in Switzerland to fall again. “this depends on many factors, such as the further development of inflation”, Oeschger said.

“Forecasts are difficult in this regard, as is also shown by the fact that the central banks have constantly revised their inflation forecasts upwards in the past year”.

Therefore, “a further rise in interest rates “would not be out of the ordinary”, Oeschger said.

So should you take out mortgage now or wait for better times?

The natural response, based on the information above, would be to sit tight and wait until inflation — and therefore, mortgage rates — go down.

However, while the increase in rates between last year and now may seem steep, Oeschger points out that “if you look at Swiss mortgage rates over a slightly longer period of time, for example over the last 15 years, they are only slightly above average”.

While this may dissuade potential home buyers from purchasing now, it may, in fact, be a good time to do so if you want to avoid future increases.

“If it is urgent to take out a fixed-rate mortgage, I would rather do it now than wait”, he said.

READ MORE: EXPLAINED: How to save on your mortgage in Switzerland

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