On March 11, 2012, the Swiss electorate approved the popular initiative "Stop the rampant construction of second homes" and thus decided to severely restrict the construction of second homes. The initiative demanded that the proportion of second homes in a municipality should not exceed 20 percent. An ordinance published at the beginning of 2013 was valid until the implementing legislation for the second home initiative came into force and provided clarity in the market. Since January 1, 2016, the Federal Act on Second Homes (Zweitwohnungsgesetz ZWG) has been definitively in force and regulates the future construction of second homes. The municipalities affected, i.e. localities with a proportion of second homes of more than 20 percent, include practically all tourist regions in the cantons of Berne, Grisons, Ticino, Vaud and Valais.  

Transitional provisions led to construction boom 

Until 31.12.2012, second homes could still be approved under the old law, which led to a marked increase in building applications between March and December 2012 and triggered a veritable building boom. Theoretically, construction should have started within twelve months (with a one-time extension of 24 months) for all approved buildings. However, since many municipalities had introduced exemptions or staggered quotas, new construction activity was still at a good level years later. At the same time, under the new regulation, it is still possible to expand supply under certain conditions. These include a) existing buildings with second homes can be subdivided or expanded by up to 30% (expansion or subdivision is permissible), b) apartments managed for tourism, c) apartments in structured lodging establishments, d) apartments in protected buildings or buildings that characterize the locality.  

Supply overhang turned into supply shortage 

The balance between supply and demand became unbalanced as a result of the construction boom from 2012 to 2017. At the same time, a heterogeneous development was observed because the absorption capacity of the various submarkets diverged. While a clear transition emerged in the Davos/Klosters region and the Engadine, the effects were far less pronounced in Arosa and Lenzerheide, but also in Flims-Laax. Among other things, this was due to the fact that larger projects with more residential units were built in certain regions, whereas smaller apartment buildings tended to be realized in other locations. In addition, the EUR/CHF exchange rate again came under strong pressure in 2014/15, which also affected the real estate market in top locations such as St. Moritz or Klosters. Other regions that were less dependent on the economic development of Europe benefited from an above-average share of Swiss guests and from new and attractive tourist offers. After 2015, hardly any more new buildings came onto the market, which led to an ongoing reduction in supply. Since 2018, we have seen a decline in vacancies and a renewed upward trend in prices. The financing of second homes is very attractive due to the interest rate situation - it is better to put the equity in a vacation property than to pay minus interest at the bank! 

Boosted by the significant increase in demand during the Covid pandemic, supply rates in all tourist regions have fallen significantly and are now lower than ever before. In many places, there are hardly any apartments or houses left to buy.

When it comes to real estate, prospective buyers look for good accessibility, a suitable infrastructure and an intact landscape.

Prices remain high and continue to rise 

Single-family homes in attractive mountain communities are and will remain in demand. This is why top prices are being achieved in many places for this property category, which are now at all-time highs. The situation is similar for rare luxury properties, which continue to meet with high demand. In the area of vacation homes, i.e. the classic second home, the price trend varied from region to region until the start of the covid pandemic in 2020. However, since the supply shortage has now set in in many places, prices have risen consistently and at a comparable percentage rate. The lack of supply has also significantly reduced the marketing time. It should be noted that not only the second-home initiative per se was decisive for the price development, but also the attractiveness of a municipality based on many micro factors. In recent years, Lenzerheide has become the second most expensive vacation region in Graubünden after St. Moritz (see excursus Arosa-Lenzerheide). 

Economic situation in Europe changes guest mix

The share of foreign buyers has been declining in the mountains for several years. Especially potential buyers from Europe have been confronted with several burdening factors since 2011. On the one hand, the euro crisis and the associated appreciation of the Swiss franc, on the other hand, the economic weakness in Italy and France as well as new tax conditions abroad. Overall, the vacation markets have compensated for these negative factors and the associated appreciation of foreign competitor destinations such as Austria through increased domestic demand.

Managed second homes/parahotellerie complements offer  

Tourist apartments are partially exempt from the restriction clause. This category includes, in particular, properties that are not individually tailored to the personal needs of the owner and that are offered for short-term rent as part of a structured accommodation business at market rates.  A 2019 Federal Court ruling specified that spatial proximity is required between the lodging establishment and the property offered for rent for a uniform operation. A management contract with a hotel alone is not sufficient. The market for managed second homes with compulsory rental has been small to date and, in certain regions, non-existent. The travel behavior of "Generation X" and "Millenmials" is different compared to traditional vacation home buyers and is likely to favor this temporary form of housing. Further, the shortage of supply of pre-existing second homes has brought managed homes into the focus of buyers and we are definitely seeing demand for such products in top destinations today. It is still too early to assess the development of prices and demand on the established vacation home market, but we do see a positive trend for such offerings, provided they are attractively designed. And the following still applies: The top priority is the positioning and tourist attractiveness of a region, in all segments. 

Conclusion: vacation homes remain en vogue - despite, or precisely because of, the second-home initiative 

Since the adoption of the second home initiative, the vacation home market offers the desired clarity and legal certainty. When talking about the second home market, each vacation region must be considered individually. Nevertheless, the demand for second homes in tourist destinations will remain a general need. Today, prospective buyers are looking for good accessibility, infrastructure and services that meet their needs, and an intact landscape. However, factors such as the general economic situation, the level of prosperity, the level of interest rates and refinancing, and psychological expectations for the future should not be underestimated and are almost more important. The vacation property is a luxury object and is only indulged in if the environment allows it.