Gains range from 4.8% a year in Switzerland over the next 10 years to 9% worldwide, according to a survey. Interview with Martin Mosler of the IWP.
Rising interest rates have weighed on real estate trends worldwide and in Switzerland, but the outlook for the sector is very positive. Price rises are even set to accelerate over the next 10 years, according to 1405 experts from 133 countries who responded to an international survey (Economic Experts Survey) by the IWP Institute, the University of Lucerne, and the University of Munich’s info institute.
The annual increase would be 9% worldwide over the next 10 years, 6.4% in Western Europe and 4.8% in Switzerland. The strongest annual gains will come from Southern Europe (18.4%), South Asia (+25.1%) and East Africa (52.6%). The estimate covers all real estate segments (commercial, residential and other).
«In Switzerland, the rise will be driven by supply.»
Despite telecommuting and inflation, rising property prices have a bright future, according to the EES survey. Martin Mosler, Head of Tax Policy at IWP and author of the report on this survey, carried out between June 14 and July 2, 2023, answers Allnews’ questions:
Let me preface my remarks by saying that these figures are based on expert estimates for the next 10 years, and do not express IWP’s expectations.
We also looked at the reasons for the anticipated developments. These vary widely from region to region. In Switzerland, the rise will be fuelled by the supply of real estate, in this case by the limited amount of space available, by the very strict regulations that are holding back new construction and by the high cost of building materials.
In other regions, demand factors determine price trends. In South-East Asia, for example, gains are moderate, but they are higher in other regions, such as Africa, in response to population growth.
Experts believe that inflation is a transitory phenomenon and that interest rates will gradually decline. Inflation, though falling, is not expected to disappear. Nominal interest rates have risen rapidly, but experts see this as a short-term effect. Interest rates are unlikely to rise further, and demand for real estate will increase significantly.
We have certainly seen a slowdown in demand following the rise in interest rates. But experts believe that this phenomenon will not last another 10 years.
The rise will be nominal. There is a strong correlation between house price expectations and inflation expectations. So we asked experts about their inflation expectations. And we find that property prices are likely to rise faster than inflation.
The differences differ from region to region. They are high in Africa, for example, and lower in Europe and the USA. But we don’t present expectations by country. Differences are very reasonable between different countries in the same region.
We didn’t explicitly ask about risks, but only about future prices and the reasons for them. Experts quite often predict a significant market correction, but I can’t say for which countries. However, this was not the majority view. In China, for example, the case of Evergrande was not yet known to the experts at the time of the survey.
We put the question to the experts and analyzed the balance sheets of UBS and Julius Baer. It is not possible to determine amounts, but we do know that both institutions have a strong presence in this country through their wealth management activities. These are growth markets. If the Chinese market were to fall, the impact would be felt on these groups’ profits.
The level of Swiss exports and investments in China is significant. It would not be cancelled out by a real estate crisis, but such an event would reduce demand from Chinese households.