My multifamily house is under price pressure – What now?

Consequences for upcoming renovations?

Currently, rising interest rates are leading to lower returns on equity. Financing institutions recognize higher risks in this and consequently set lower financing ratios. Energy-efficient renovations are financially supported, but they are cost-intensive. Especially for properties that have a renovation backlog but no capital set aside for it, it will be difficult to finance the upcoming work by increasing the mortgage.

Passing on higher mortgage interest rates to tenants?

For a rent increase, it is not the current mortgage interest rate that is decisive, but the reference interest rate that applies throughout Switzerland. This only reacts very slowly to changes on the financial market. It usually adjusts with a time lag of three to four years and lags considerably behind. A rent increase for a property without renewals and renovations is considerably restricted by tenancy law. Also, a rent increase is hardly enforceable in a bad economic situation and leads to a higher vacancy rate.

Selling multifamily house?

Selling an investment in a declining market only makes sense if the loss is to be minimized and investment alternatives exist. In contrast to investment properties, a significant correction has already taken place on the stock markets. The bottom seems to have been reached, and the chance of earning greater returns again with investments on the stock market is increasing day by day.

The situation is quite different in the homeownership market. See article “Real estate prices up or down?” Buyers have become more cautious, but demand is unbroken. Ideal conditions to convert a multifamily house into condominiums and sell the residential units individually. Residential property is still in a rising market environment.

Currently, one can expect sales proceeds of 15 to 20 % above the value of the investment property. However, not every property is suitable for this. Legal and structural aspects, market conformity, renovation status and standard of fit-out are just some of the many factors that need to be taken into account.

Is a conversion to STWE risk-free?

Of course, there are risks. For example, a conversion can only be successfully implemented if,

• the technical conditions are in place,
• very good knowledge of tenancy law is available,
• very good knowledge of the market is available.

Do it yourself? Risk?

In any case, we recommend involving specialists in the implementation. They have the advantage of being able to communicate neutrally and transparently. If you provide them with the necessary competencies and generous room for manoeuvre, they will be able to act in an uncomplicated manner and prevent damage to your image with creative solutions. If you take these points into account, the risks are low.

Whether the technical requirements are met and the risk is in relation to the profit/potential is part of a deeper analysis, which we will be happy to check for you. Whatever you have in mind or which possibilities you would like to examine, please contact us.