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Archives of market commentaries
Market Commentary May 2024
The indirect real estate market is in a transitional phase: various corporate actions in the coming weeks are leading to investor caution, resulting in increased volatility...
Market Commentary May 2024
The indirect real estate market is in a transitional phase: various corporate actions in the coming weeks are leading to investor caution, resulting in increased volatility. Meanwhile, the resilient and fundamentally strong Swiss market, along with positive interest rate developments, are fostering confidence as investor trust gradually returns. However, important questions remain: Is the sustainable transformation of the building stock being given enough weight in asset management? Can managers truly deliver on their promises? Politically, the focus is currently on the issue of housing shortages. Increased immigration numbers have prompted the SVP to launch the initiative "No 10-Million-Switzerland," which demands that the permanent resident population does not exceed ten million before 2050. The views of politicians and the construction and real estate industries on possible solutions to the housing shortage diverge. Additionally, during the summer session, both the National Council and the Council of States will address questions regarding transparency in the real estate market, rental yields, and ecological measures. The Swiss Real Estate Association (VIS) recommends that the councils reject almost all motions, stating that they are simply not effective (more details at www.vis-ais.ch). It should be noted, however, that not everything is decided at the federal level: initiatives concerning housing protection, pre-emptive rights, and environmental protection are handled and decided at the cantonal or municipal level. Nevertheless, the Federal Council plays a significant role, whether through the UVEK department led by Federal Councillor Rösti, which also includes the Federal Roads Office (ASTRA), or the WBF department led by Federal Councillor Parmelin, which tries to bring the industry and politics together. Various developments in cantonal tenancy law (keyword tenant protection) are not really new. This situation has been a reality in the cantons of Geneva and Vaud for over 50 years. This fact has not hindered the success of indirect real estate investment products focused on Western Switzerland.
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Market Commentary April 2024
The real estate funds were unable to sustain the strong growth seen over the past 5 months. Profit-taking has set in, which could have various reasons...
Market Commentary April 2024
The real estate funds were unable to sustain the strong growth seen over the past 5 months. Profit-taking has set in, which could have various reasons. Of particular concern are the high premiums on residential real estate funds, sometimes exceeding 40%. In contrast, real estate stocks with similar portfolios are still trading at a discount. The announced capital increases have led to an overload and cooling off of the real estate funds. The lack of conviction among some managers to justify additional engagement is leading to a loss of trust. Opinions on the potential of the planned merger between Novavest and SenioResidenz differ: while the boards of directors are enthusiastic, Novavest's share price has fallen since the announcement. Are the anticipated benefits for investors simply not tangible enough? The uneven distribution of benefits in the exchange ratio was unfortunately not adequately considered. Additionally, both portfolios carry different risks. Shareholders will have the opportunity to decide on the proposal at the extraordinary general meeting. While real estate funds are structured like preferred shares and therefore do not have voting rights, shareholders can and should defend their interests. The restructuring of Ina Invest's structure has been approved. Shifting a larger block of shares brought in a new major shareholder, which was welcomed by the market. Procimmo is restructuring by terminating the contract with their fund management, which will now be handled internally. The merger of the fund managements of UBS and CS is now just a formality; further considerations will likely be presented by UBS by the end of the year. As inflation in Europe continues to decline and an interest rate cut by the ECB becomes more likely, it is now certain that a rate cut by the Fed will be further delayed. The extent to which this will influence the upcoming decisions of the SNB remains to be seen. We can envision a scenario in which the SNB promptly makes the next downward interest rate move, prompting larger investors to adjust their allocation towards real estate investments at the expense of bonds.
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Market Commentary March 2024
The decision by the Swiss National Bank (SNB) to cut interest rates by 0.25% to 1.50% seemed largely priced into the stock prices of real estate funds...
Market Commentary March 2024
The decision by the Swiss National Bank (SNB) to cut interest rates by 0.25% to 1.50% seemed largely priced into the stock prices of real estate funds. The cut now translates into more attractive conditions for short-term refinancing. It seems that further increases in the reference interest rate are likely off the table. In order to develop an action plan regarding housing shortage and tenant protection, a special session chaired by Federal Councillor Parmelin was held: Core measures include simplifications in approval procedures, strengthening of indirect housing subsidies and a reduction of the high degree of regulation, for example regarding noise protection. This is a positive signal for pending and future development projects – portfolios with land reserves and ongoing construction projects are thus likely to yield higher returns for investors. UBS predicts that due to sustained strong demand, driven by high migration balance, surplus births, and simultaneously low construction activity, price increases can be expected for residential properties. Regionally, however, price developments can vary: While lower transaction levels and consequently valuation discounts have been observed in Geneva, the Zurich market remains consistently stable. Price volatility historically tends to be higher in the Lake Geneva region – this, in turn, offers opportunities for active long-term investors. Unfortunately, current capital increases are not always launched with this intention. Several funds prefer to increase redemption fees and tap into their reserves for high dividend payouts, rather than positioning themselves for future attractive opportunities in the interest of investors. Real estate stocks such as Espace Real Estate, Plazza, Warteck, or Investis demonstrate their high level of activity in the annual reports, which should be reflected in significant excess returns in the medium to long term. The acquisition of Fundamenta by Swiss Prime Site, meanwhile, indicates that the expected market consolidation is finally gaining momentum – a healthy, necessary development.
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Market Commentary February 2024
After 20 years of a real estate boom, with declining discount rates, we all need to refocus on the fact that valuation fundamentally consists of two components: cash flow and discount rate...
Market Commentary February 2024
After 20 years of a real estate boom, with declining discount rates, we all need to refocus on the fact that valuation fundamentally consists of two components: cash flow and discount rate. The interpretation of the average discount rate communicated by many market participants will become more complex in the future, as especially in distressed properties (or portfolios), a devaluation and a declining discount rate are not mutually exclusive. The annual results of real estate stocks confirm that the market reflects our solid economy. The stable political situation also contributes to this. Nevertheless, there is consolidation among investors. While institutional investors maintain or slightly reduce their real estate allocation, larger private investors are stepping in, taking advantage of portfolio clean-ups for new purchases at better terms than in the last 2-3 years. Contrary to the negative expectations of some investors regarding the Swiss real estate market’s development, Swiss real estate products paint a different picture. With rising rental income and stabilized interest costs, the industry proves that real estate provides good inflation protection. With perspective and good management, additional and long-term value can even be created. Following a net migration of 100,000 in 2023, new housing units still need to be built. Quick-buildable land is being sought, and finally, even the Federal Council is addressing this issue. Only few actors have land reserves. With stable or expectedly declining interest rates, construction activity in the residential sector should pick up in the next 12 months. An annual performance of 3-4% for real estate investments with an investment horizon of 7- to 10 years can still be expected. The recent price increases in real estate funds give many managers hope to reduce their mortgage burden through new capital increases, but are investors ready again? Will the upcoming dividends be reinvested or used for payout?
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Market Commentary January 2024
The turn of the year is always characterized by uncertainty and new objectives. The geopolitical situation is anything but stable, with social unrest and strikes becoming commonplace...
Market Commentary January 2024
The turn of the year is always characterized by uncertainty and new objectives. The geopolitical situation is anything but stable, with social unrest and strikes becoming commonplace. Macro-economic data shows that inflation is highly heterogeneous, somewhat normalizing but persisting. The IMMO24 investor fair provided a preview of what the real estate industry might expect in the next 12 months. Focus areas included interest rate trends and developments, inflation, rent increases vs. tenant protection, short-term vs. long-term financing, and sustainability. In general, a further deterioration of the economic situation can be expected in the fall – increasing job cuts could already be an initial indicator of this. Central banks would be compelled to readjust interest rates downwards in this case. When and how this happens varies in expectations. MV Invest anticipates a possible return towards a near-zero interest rate level by mid-2025. The significantly more challenging international market situation is affecting individual players in the country. Turbulent times generally lead to consolidations. However, Switzerland reaffirms its robust constitution, especially in comparison to Europe. Nevertheless, valuation losses of up to 3% are expected by the end of 2023. The local real estate market, however, stands on an extremely solid foundation. Operational results paint a strong picture, with vacancies decreasing at the fastest rate in years. Stable cash flows are expected – even assumed. Consequently, future valuations should stabilize. Potential and added value are sought and created in the existing portfolio. A healthy mix of residential, commercial, and special-use properties should continue to be considered. After the partial recovery in real estate funds, some asset managers are already contemplating capital increases – which would lead to dilution.
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Market Commentary December 2023
Switzerland is preparing for a population of 10 million people, inevitably leading to an increased demand for housing. In this context, the participation of investors with a long-term perspective is crucial...
Market Commentary December 2023
Switzerland is preparing for a population of 10 million people, inevitably leading to an increased demand for housing. In this context, the participation of investors with a long-term perspective is crucial. Besides leveraging existing properties, new developments are also necessary. Unfortunately, developers are facing significant challenges. Construction times and approval deadlines have doubled due to numerous bureaucratic hurdles, such as shading, local concerns, noise and heritage protection. This is a clear sign of a policy that does not act in the interest of the population. Many investors anticipate imminent interest rate cuts, which could revive interest in real estate investments. In the final weeks of the past year, publicly traded real estate products underwent reallocations, causing fund prices, especially those of index-related investors, to rise to mid-2022 levels. This development is positive, but premiums of over 30% and distribution yields of 2% in residential real estate funds seem to warrant exploring alternatives – which do exist. With a positive trend, it is expected that some managers will conduct new capital increases to reduce mortgage burdens, leading to further dilution of existing portfolios. The year 2023 was marked by significant volatility due to various uncertainties. However, the outlook is improving for the new year. Managers are now tasked not only with creating value but also providing investors with new perspectives. Learn more about current real estate investment trends on January 17th and 18th at IMMO24. Everyone is invited to participate in enriching discussions and benefit from educational opportunities.
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