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That Zurich lakeside property may finally become more affordable

[BERLIN] Zurich's housing market boom is starting to fizzle out.

Home values in the canton fell in the fourth quarter, the first decline in almost two years, according to Zuercher Kantonalbank. Demand is unlikely to pick up in 2018, the Swiss lender says, in part because fewer people are moving to the country's largest city.

The decline comes after a decade in which home values jumped more than 50 per cent to an average of about 1.3 million Swiss francs (S$1.84 million), helped by years of negative interest rates. It contrasts with increases in real estate markets such as Frankfurt, which is benefiting from an influx of bankers as Wall Street lenders hire and relocate staff from London ahead of Brexit.

Zurich's home prices will at best remain little changed this year, and could even fall further, according to ZKB. "That would be a turning point for the market," Peter Meier, head of real estate analytics, said in an interview.

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Mr Meier cited factors including a slowdown in Zurich's population growth to 1.1 per cent last year. "At the same time, salaries have risen far less than property values in recent years," he said.

"The property market currently stands at a very high level," especially for assets that investors are buying to enhance their yields, said Fredy Hasenmaile, head of real estate analysis at Credit Suisse Group AG. "However, once interest rates normalize in Switzerland, we may see a correction." To be sure, the Swiss National Bank isn't expected to raise rates anytime soon. Economists see the deposit rate staying at a rock-bottom minus 0.75 per cent until late 2019.

What's Needed "Zurich would need a cocktail of factors - primarily on the demand-side and with regard to low interest rates - to cause house prices to increase significantly once again," said Patricia Reichelt, head of research at CSL Immobilien. CSL is part of property broker Colliers International Group Inc.

Banks and other financial companies are also key to Zurich's economy, employing about 90,000 people there. However, job cuts in the industry have caused it to shrink in recent years. In the process, Zurich has slipped to ninth in the Global Financial Centres Index from a high of fifth place in 2013. Geneva is 15th.

"There are still plenty of buyers from financial companies, but compared with five years ago, the number has dropped significantly," said Lars Keller, a managing partner at broker Engel & Voelkers in Zurich.

Here's what US$1 million (or so) buys you in the Zurich area: A two-bedroom apartment in Zollikon, a village on Lake Zurich a few minutes away from the city center by car, train or tram. The property has 75 square meters (807 square feet) of living space, and comes with a balcony and a cellar for your wine collection. Price: 970,000 francs (Knight Frank) A three-bedroom home in the hamlet of Gockhausen with 123 square meters of living space and its own bunker. Gockhausen is on a wooded hill to the east of Zurich, and is about a 10-minute drive from the airport. Price: 1.4 million francs (Knight Frank)