Google recruiting propels Zurich home prices past London, Paris

ZURICH has become one of Europe’s hottest housing markets, with prices surging past London and Paris, and showing how local shortages can offset interest rate hikes.

With demand in the Swiss financial hub stoked by hiring from companies including Google, apartments in the central Zurich district are being listed at near-record levels of over 18,000 euros (S$26,222) per square metre, more than double that of London, according to data compiled by Bloomberg. 

Even when widened out to the Zurich canton, which includes some remote mountain villages but also homes for many commuters, asking prices are almost at the level of Paris. Those prices rose 5.8 per cent in August from a year earlier – the biggest increase in 16 months. 

While Paris, Vienna and Berlin posted year-on-year declines in their latest monthly figures, prices in the bulk of markets monitored by the Bloomberg City Tracker are still rising – albeit trends have slowed or flattened. 

The increases suggest consumers might be gradually adjusting to higher interest rates as tight housing markets help to keep a floor under prices. But it takes time for central bank rate hikes to work through the system, and conditions are finely balanced with consumers already squeezed by inflation and valuations high.

Month-on-month trends show that listing prices were mostly weaker across the nine cities tracked by Bloomberg, though activity is typically slow during the summer months. To capture the latest housing market trends in European cities, Bloomberg compiles figures from a range of providers. Some are asking rates and indicative levels, while others are official figures on transactions. 

Despite Sweden’s property crisis, prices in Stockholm – where there is a dearth of rental options – rose 4.3 per cent from a year ago. Madrid and Milan, which had less of a boom during the cheap money era, posted increases of more than 3 per cent. Price gains in all three cities were slower than in previous months.

Zurich though, is a clear outlier. UBS Group, which is based in the city, ranked it as having the highest risk in the world of suffering a real estate bubble.

Homes in the Swiss city cost over 50 per cent more than a decade ago. An increasing number of high-income earners have helped lift prices, which have not yet adapted to higher interest rates, the bank said on Wednesday (Sep 21) in a report.

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Increasing demand from immigration is colliding with constrained supply and offsetting higher interest rates, and the trend is unlikely to change soon, according to Alexander Koch, an economist at Raiffeisen Switzerland.

“We have low supply but at the same time, we have increasing demand due to employment growth and immigration,” he said. “Real estate issues are always very difficult in politics, and implementation usually takes many years.”

Located between mountains and a large lake, Zurich has natural limits to how much housing it can offer. But high salaries and the beautiful surroundings are a big draw for people from around the world. About one-third of the city’s nearly 450,000 residents are foreigners.

While financial services are a traditional strength – accounting for one in 10 jobs in the area – Alphabet’s Google has become one of the biggest local employers. Currently, more than 5,000 people from 85 countries work for the tech giant in Zurich, which has three campuses in the city. A fourth is due to open later this year near an existing location in the trendy district, not far from the famous red-light district Langstrasse. 

That type of growth is more than offsetting concerns over job cuts from UBS’s takeover of Credit Suisse, which are expected to take place gradually.

Corporate settlement has been encouraged in Switzerland since 1998, which ushered in tax privileges for holding companies and expats. But now concerns are growing that it has gone too far. 

About 8.9 million currently live in Switzerland, an increase of almost 10 per cent over the last decade, and limiting the country’s growth has become a key issue ahead of elections on Oct 22. 

The conservative Swiss People’s Party – which is set to increase its lead – is pushing for a vote to change the constitution to not let the population exceed 10 million people until 2050 by limiting asylum rights. The left-leaning Social Democratic Party names company settlement as the problem.

In a survey conducted in 2022, 37 per cent of migrants cited professional reasons and only 6 per cent cited seeking asylum as the main reason for settling in Switzerland.

To help regular folks live off their pay cheques, Zurich earlier this year implemented a minimum wage of 23.90 Swiss francs (S$36.02) per hour, which equates to a monthly full-time salary of roughly 4,000 francs – 80 per cent more than the minimum living wage in the City of London. Google, meanwhile, pays entry-level software developers as much as 200,000 francs a year.

On top of the generous salaries, Switzerland also has a noticeable advantage in financing costs compared with its neighbours. Even though the Swiss National Bank is expected to raise the interest rate to 2 per cent on Thursday, that is half the European Central Bank’s 4 per cent. And while local banks often require deposits of at least 20 per cent, mortgages can sometimes extend beyond 50 years, easing repayment burdens.

With all that money sloshing around, prices have surged to unprecedented levels. For example, a 50 sqm loft apartment with a bedroom in a mezzanine is listed for almost US$1 million. One of its key selling points: it is about a 15-minute bike ride from Google offices. 

“For every manager who immigrates, there are an estimated 10 others who provide services in the surrounding area; that’s how this immigration comes about,” Jacqueline Badran, a social democratic member of Switzerland’s parliament, told the Neue Zürcher Zeitung earlier this month. “In this respect, our business model of a low-tax country has actually worked, with all the unpleasant consequences.” BLOOMBERG