Insights for 2024

The year is coming to an end, and the holidays and family gatherings remind us how important it is to feel at home.

2023 has been eventful, and this newsletter will provide an opportunity to reflect on the events that have impacted the real estate market in Geneva and share our convictions for 2024. Our analysis will focus on condominium (PPE) housing and houses in Geneva.

 

Here are what we believe to be the 10 key “influencers” that had a direct impact on this market in 2023:

• Cantonal vote against increasing dividend taxation
• Cantonal vote against increasing wealth taxation/slight reduction of this tax
• Successive interest rate hikes
• Historic low in vacancy rates
• Wars in Ukraine and Israel
• Global insecurity and extremism
• Presence of commodity trading companies
• Record state spending, but budget saved by traders
• Growing population exceeding projections
• Housing construction blocked by administration and/or neighbors

Residential real estate brokers across all segments recorded a significant drop in transaction volumes in 2023, following record-breaking years in 2021 and 2022 during the post-COVID period. Only those operating in the ultra-high-end segment managed to thrive, catering to a clientele less affected by interest rates.

However, we believe that the first two events mentioned, combined with the earlier corporate tax reform stabilizing around 14%-15%, are much stronger market influencers than the temporary rise in interest rates, which remains historically low. Furthermore, these popular decisions have long-term effects, bringing a degree of legislative predictability essential for all types of investors. In parallel, specialists agree that interest rates are expected to drop significantly by the end of 2024.

Moreover, while transaction volumes declined in 2023, prices did not fall. This lack of correlation between fewer transactions and stable prices is primarily due to the fact that Geneva’s property owners are generally well-off and are not forced to sell hastily.

With the observation that there are no rental properties available and interest rates appear to be stabilizing, we are already witnessing a return of buyers. The problem is that, unlike in 2021 and 2022, there is now nothing left to sell! Worse still, the lack of supply is worrying sellers, who are reluctant to sell, unsure of where they could relocate afterward.

Unfortunately for buyers, the supply is not keeping up, with the vacancy rate at just 0.3%, compared to nearly 0.5% after COVID.

It is clear to everyone that a market with a growing population and no supply will see prices increase. The vacancy rate summarizes the balance of power between supply and demand, and it’s undeniable that prices will rise significantly in the coming years across all residential segments in Geneva.

This is especially true in an unstable world where Switzerland, its currency, and its real estate market are safe choices for both living with one’s family and investing.

The saying “One person’s misfortune is another’s gain” has always rung true for Geneva, which has benefited from all international crises over the past 20 years. This was particularly the case in 2008 when real estate prices in Geneva were at their peak, even as all other real estate markets were collapsing. Geneva thrives on wars and political instability in neighboring countries. The prospect of a potential Melanchon/Le Pen election in France could further amplify this phenomenon. Across Europe and beyond, insecurity and extremist religious and political movements are almost certain to drive significant wealth migration toward Switzerland.

Geneva is the most spendthrift canton in Switzerland. Its financial health relies on the presence of international companies and the tax revenue they bring. However, there’s the question of housing the employees of these companies we attract. Let’s hope that the new right-wing majority will adopt a housing policy that aligns with its economic policy. It will bear responsibility for soaring prices if it fails to do so.

While massive social housing projects are a good thing, nothing is being done to address the demand for free-market housing for the middle and upper classes. Laws continue to pile up, state services enforce them excessively, and neighbors oppose every new building permit without facing any penalties, even when their objections are unfounded. No one seems to be doing anything to resolve the situation. The procedures to build something as simple as a swimming pool can take two years, and those for residential housing facing a neighbor’s opposition can take up to 10 years. Developers are fed up and are almost all turning to the canton of Vaud. The solution is simple: as elsewhere, the state should limit itself to enforcing the law, and the courts should require unsuccessful objectors to compensate the builder for the real costs incurred by their objections.

To combat rising prices, the state will need to choose: either drive away international companies and the tax revenue they bring, which funds social projects, or free developers from administrative hurdles to facilitate construction. All indications suggest that the state will do neither…

So, take a step back—don’t just take our word for it. Analyze the key influencers yourself. You will see that never before have these influencers been so numerous and aligned in the same direction: toward a strong and certain rise in prices. This makes now the best time to invest.

On behalf of my entire team, I wish you a joyful holiday season and a wonderful 2024 filled with health, happiness, and prosperity—through real estate, of course!

Léonard Cohen