They say home is where the heart is, so it’s only logical that purchasing your own place is a business transaction that comes packed with emotion. As Covid-19 spotlights home and home-office solutions, Gianfranco Bibbo, Head Mortgages Switzerland, and Andreas Hitz, Lead Valuer Real Estate, answer to the top questions Julius Baer’s Mortgage Team gets asked currently.
How has Covid-19 changed the global real estate market in terms of demand, price and what buyers want?
Gianfranco Bibbo: “It’s fair to say that Covid-19 has accelerated trends which were already present. Prices have risen, though lower interest rates were already fuelling that. And, while we received a record number of mortgage enquiries, the pandemic has not fundamentally changed the market.
I asked Thomas Kammermann, our Chief Credit Officer, for his take: “Covid-19 has changed our habits – we are spending more and more time at home or closer to home. Lock-downs mean home-office solutions are in demand and people are looking for smart ways to live and work in the same space. People are understandably craving for increased security and peace of mind. Many buyers are looking to maximise the space-purchase price benefit by moving outside of city centers.”
Which new trends have arisen since Covid-19 emerged?
Andreas Hitz: “The global pandemic is an historical event without precedence in modern times. It’s not yet possible to predictively model its impact yet some trends are surely here to stay, such as the rise of working from home.
There’s a current rise in so-called “sea-changes” or “tree-changes” as many buyers wish to escape the intensity of city life. But not everyone wants to move out of the city and those who stay will demand safer solutions for high-density living. People are also starting to think about how to incorporate leisure time and “staycations” into their property.
It’s interesting to note that working from home allows you to literally zoom-in on your boss’s apartment, or the home of your colleague 20,000 miles away. This feeds into what we’ve referred to over the past ten years as “The Jamie Oliver Effect”. When he got an open kitchen on his cooking show, suddenly many Europeans who traditionally cooked in closed kitchens wanted an open space. It’s the modern-day equivalent of “keeping up with the Jones’”. Furthermore, increased digitalisation and the high use of social media have produced a globalisation of housing and interior trends.”
What’s happening to prices?
Gianfranco Bibbo: “Before the pandemic hit, residential property prices were rising due to lower interest rates fuelling demand. And prices are continuing to rise despite the pandemic situation. People want an increased amount of private space and the limited number of offerings on the market means prices have been pushed up.
It’s too early to predict new pricing and demand patterns, but there will definitely be an impact.
On the commercial front, offices and retail spaces are being impacted by work-from-home rules and restrictions placed on shopping. It’s too early to predict new pricing and demand patterns, but there will definitely be an impact. Not only has COVID-19 boosted the sharing economy, less offices will be needed in the future and online shopping might see physical shops transform into showrooms with a focus on top locations. There’s a current micro-trend of workers renting “home-offices” outside the home for peace and quiet and a change of scenery.”
Andreas Hitz: “When it comes to investment properties, rental prices have seen a decline in rural areas due to oversupply. Those with cash – large private investors, pension funds and insurance companies – continue to take advantage of low interest rates and invest into rental properties, even if occupancy rates will be low (the justification being, it’s better to have a small income from rental investment than no income or even a negative one by staying in cash). But rents remain high in big cities, where demand continues to exceed supply. In Zurich, for example, queues still form around the block for apartment viewings, whether there is space for a home office or not.”
Is it the right time to buy my own home?
Gianfranco Bibbo: “This is a very personal question. Home ownership is an emotional topic and far more personal than trading shares, for example. Many gain a sense of security from living in a home they own, and this is a big drawcard currently. Simply said: there’s no formulaic right-moment to purchase or not, it’s often related to people finding a property they fall in love with. In terms of investments, property prices have continually gone up over the long-term. Given this, it’s always made sense to be invested in property and self-used property should be seen as a long-term investment decision.
To help our clients arrive at a decision, we walk them through questions such as: Are you ready to commit to staying in the one place? Is there a suitable property that matches your family situation in terms of location, size and price? How much of your wealth can you afford to pour into one property? Do you have a surplus of cash in your portfolio and would investing into real-estate be beneficial for the overall portfolio balance? This happens in coordination with other internal teams, such as wealth and tax planning. We have to be quick as the real estate market is very fast-moving right now.”
Other than Covid-19, what other factors are influencing the development space?
Andreas Hitz: “This is a really interesting topic. We’re always monitoring trends in the real estate industry for clients and there are currently some cool development trends rising. One is ‘hotelification’ – it’s not a new trend but the pandemic is accelerating its arrival to Europe. It can be jokingly described as like living an episode of Friends – everything you need and want for your life is provided within a small space footprint.
Private living spaces remain relatively unchanged but offices and gyms move to communal spaces, meaning you can save on square meters in your own home. Bars and shops are also incorporated, minimising people’s need to travel and spend on mobility.”
Gianfranco Bibbo: “Millennials will drive trends like hotelification and the share-economy. Their reluctance to spend too much money on housing and cars at the expense of missing out on holidays, for example, is slowly making an impact. And, while renting suits their flexible lifestyle, this doesn’t translate into a reduced mortgage market because their landlords still need financing. So, while the number of mortgage lenders may reduce in the future, they are likely to be concentrated into groups such as large-scale investors who require greater funds and levels of support.”
Our Wealth Planning series focuses on the most important moments in life – whether it is starting a business, building up a fortune, moving abroad, preparing for retirement or transferring wealth to the next generation. We ask the relevant questions and provide answers from a wealth management perspective.