UBS Alpine Property Focus 2018 Chief Investment Office Americas, Wealth Management 22 May 2018 3:12 pm BST Maciej Skoczek, CFA, Economist; Matthias Holzhey, Economist; Claudio Saputelli, Economist Prices for vacation homes in the Swiss Alpine region have recovered slightly However, the price trends lag those of the top destinations in Austria and France This report analyzes the most expensive vacation apartment markets in the Alpine region, using a wide selection of indicators to provide supporting data Second homes in Engadin/St Moritz most expensive As was the case last year, Engadin/St Moritz is the most expensive tourist destination in the Alpine region A good-quality vacation apartment in the area costs around CHF 15,000 per square meter This is around 7 percent more than in last year This is followed by Gstaad, where prices come in at a whopping CHF 14,500 per square meter, again higher than in 2017, although prices rose a more moderate 2 percent over the year The French resort of Courchevel, along with St Anton am Arlberg and Kitzbühel in Austria make up the remainder of the top-five spots for most expensive Alpine vacation destination where good-quality second homes fetch around CHF 13,000 per square meter Prices in these resorts rose by 4 to 7 percent in euro terms compared to the previous year Rising prices in Austria and France Average second home prices across all Alpine destinations increased by 15 percent compared to the previous year Prices climbed significantly in relative terms at Austrian and French destinations (5 percent and 3 percent, respectively) In Swiss resorts, prices rose by 1 percent on average compared to the previous year Of all the Alpine regions, only the top Italian destinations recorded a slight fall in prices Overall, prices in the Austrian Alps are almost 20 percent higher than in 2013, while in the French Alps they are up by around 15 percent In contrast, prices in Switzerland are down 4 percent from 2013, with Italy 10 percent lower Exchange rate and economy benefit Swiss vacation apartment market Over the past year, the euro appreciated by almost 10 percent against the Swiss franc This movement was a factor in the Eurozone Alpine destinations advancing in terms of price, in some cases substantially As a result, Swiss vacation apartments became relatively more attractive The strong economy also supports demand within Switzerland In 2018, we expect slightly rising prices for second homes in the Swiss Alpine region A version of this report was originally published outside of the US in German on 23 May 2018 Price overview of the destinations Bars show the bandwidth of the prices for vacation apartments in the upmarket segment, in thousands of Swiss francs per square meter CH FR AT 0 IT 5 10 Luxury market* 15 20 Engadin/StMoritz Gstaad Courchevel St Anton am Arlberg Kitzbühel Verbier Val d'isère Méribel Lenzerheide Jungfrau Region Zermatt Cortina d'ampezzo Laax/Flims Davos/Klosters Megève Courmayeur Engelberg Andermatt/Sedrun Saas-Fee Adelboden/Lenk Chamonix Crans-Montana Scuol Arosa Villars-Gryon-Les D Samnaun Anniviers Val-d'Illiez Hasliberg Flumserberg Breil/Brigels/Obersaxen Wildhaus Nendaz/Veysonnaz Leysin-Les Mosses Aletsch-Arena Ovronnaz Anzère Evolène Disentis/Mustér Leukerbad Source: Wüest Partner, Callon, Nomisma, immiat, UBS *Locations with a high-end segment with no top limit to prices This report has been prepared by UBS Switzerland AG Please see important disclaimers and disclosures at the end of the document
Number of vacation apartments likely to continue growing If the supply of vacation apartments remains static, the prices of existing properties inevitably move in tandem with demand For vacation apartment owners, the legal framework appears to be advantageous at present This is because the Second Homes Act imposes tight limits on the new construction of second homes in Switzerland's tourist destinations The supply of new vacation apartments is nevertheless not likely to peter out quickly Grandfathered homes as a major reserve of second homes There is a large reserve of potential second homes as, under the Second Homes Act, grandfathered1 homes are not subject to any restriction on use In around two-thirds of destinations we have reviewed, however, their repurposing is restricted through local regulations Even before adoption of the Second Homes Initiative in 2012, most tourist-oriented municipalities (especially in the Canton of Grisons) controlled the housing market by means of first home quota plans, area quotas, incentive taxes or zoning regulations Nevertheless, in many regions, the proportion of usage-restricted grandfathered homes is below 10 percent Only in Oberengadin, where the municipalities introduced usage restrictions in the early 1980s, up to one-third of the grandfathered homes are registered as first home Shrinking population increases stock of second homes Around 80,000 homes (40 percent of the total stock) are used as a primary place of residence in vacation destinations If only one percent of these homes were converted into second homes per year, the stock of second homes would rise by 06 percent each year How many first homes actually come on the market as second homes depends on the population trends in the individual destinations If there is growing demand for first homes (for example in Lower Valais), a correspondingly smaller number of second homes will come to the market A comparison of building permits and population growth indicates an over-supply of first homes, and consequently a growth in the stock of second homes The specific repurposing of first homes into second homes by means of replacement buildings is not, however, in the spirit of the Second Homes Act If this option is exploited (for example by way of a legal loophole), further restrictions could follow at the municipal level The introduction of further restrictions is currently being discussed in some localities (eg in Davos and Zermatt) Low population growth favors conversion of first homes Population growth since 2006 and potential expansion of the stock of second homes through the conversion of grandfathered first homes, in percent Ovronnaz Leysin-Les Mosses Anzère Flims/Laax Nendaz/Veysonnaz Anniviers Engelberg Val-d'Illiez Crans-Montana Verbier Villars-Gryon-Les Diablerets Scuol Engadin/StMoritz Zermatt Flumserberg Evolène Hasliberg Gstaad Wildhaus Disentis/Mustér Jungfrau Region Breil/Brigels/Obersaxen Davos/Klosters Lenzerheide Adelboden/Lenk Saas-Fee Arosa Samnaun Aletsch-Arena Leukerbad Andermatt/Sedrun -15 0 15 30 Population growth Conversion potential Relatively low Medium Relatively high Source: FSO, UBS 1 As defined in the Second Homes Act, grandfathered homes are all types of homes that legally existed or for which a legally valid construction permit had been granted as at March 11, 2012 Source: gettyimages 2
Hotel repurposing and homes managed for tourism with low impact Existing hotels are a further source of new second homes If it can be shown that a hotel can no longer be run profitably, parts of it may be sold as a second home or leased on a long-term basis However, this potential supply of second homes is small in most locations Homes managed for tourism purposes2 may continue to be established in municipalities with a high proportion of second homes Managed homes are sold with a restriction on use In these cases, the buyer acquires condominium ownership with future rental income, as the apartment must be permanently advertised for short-term rental The buyer may not furnish the apartment according to personal taste and may make personal use of it for not more than three weeks per high season For this reason, homes managed for tourism tend to be comparable with hotel investments and contribute only indirectly to the supply of second homes Letting only mildly attractive Over the past ten years, online portals have made it considerably easier to rent out vacation apartments, enabling owners to earn more income Above-average rental income can be found at locations with unique or exceptional tourist attractions/activities (such as Engelberg, Zermatt or the Jungfrau region), especially during the peak winter season However, vacation apartments seldom guarantee regular income over the course of the year; on average, only around one out of three properties is fully let over a full 12-month season In the low season, in particular, occupancy can fall to just 20 percent When leasing a vacation apartment through Airbnb, the average expected yield across all destinations after deducting leasing expenses is around 4 percent Yields vary considerably by between 1 to 2 percent in Gstaad and around 7 percent in Evolène Second homes are often not ideal investment properties Although attractive returns can be achieved depending on destination and season, the expected yield is lower and more volatile than the average found in the biggest Swiss cities Large bandwidth of rental yields Expected rental yields*, in percent; expected daily rental income** on an annual average, in CHF 0 2 0 20 4 6 8 Evolène Engelberg Jungfrau Region Zermatt Hasliberg Aletsch-Arena Leukerbad Val-d'Illiez Breil/Brigels/Obers Anniviers Disentis/Mustér Arosa Leysin-Les Mosses Ovronnaz Villars-Gryon-Les D Samnaun Andermatt/Sedrun Adelboden/Lenk Wildhaus Nendaz/Veysonnaz Davos/Klosters Anzère Flims/Laax Scuol Verbier Crans-Montana Lenzerheide Saas-Fee Engadin/StMoritz Flumserberg Gstaad Yields (top axis) 40 60 80 Daily rental income (bottom axis) Source: AirDNA, UBS *When letting a studio apartment with around 30 square meters of usable space ** The expected daily rental income is calculated based on the average price of a studio and the occupancy rate in the previous year 2 Tourist managed homes may be established in the form of accessory apartments, with the residents performing the role of host Managed homes may also be established as structured hotel-like businesses These offer apartments for shortterm letting, have minimal hotel infrastructure (reception) and offer hotel services (restaurants, cleaning, etc) 3
Leading vacation apartment markets in the Alpine region The table of leading vacation apartment markets focuses on destinations with a price per square meter of over CHF 8,000, sorted by price While extensive, the list does not capture all properties or locations within these parameters We also sort the list by market size and data availability Prices are expressed in Swiss francs (EUR/CHF exchange rate = 117); price changes, on the other hand, are in local currency Due to limitations on data availability, the analysis of rental prospects, population growth and supply restrictions are only carried out for destinations in Switzerland Source: Fotolia Top vacation apartment markets in the Alpine region Price category one: Price per square meter over 8,000 Swiss francs Prices Place vs Vacation 2018 2017 destination Location characteristics Annual growth Level in CHF/m² 1yr 5yr* 10yr 1 Engadin/StMoritz 15 400 74-17 27 2 Gstaad 14 300 15-04 29 Market size Market outlook Accessibility Tourist facilities Occupancy Rental perspective Population growth Restrictive supply 3 +1 Courchevel 13 400 45 32 14 4 +2 St Anton am Arlberg 13 100 65 31-5 +2 Kitzbühel 12 900 51 31-6 -3 Verbier 12 300-32 -26-16 7 +2 Val d'isère 12 200 27 17 06 8 +3 Méribel 12 000 27 31 11 9-4 Lenzerheide 11 700 02-18 36 10 Jungfrau Region 11 300 48 11 16 11-3 Zermatt 11 300 16-26 26 12 +1 Cortina d'ampezzo 10 700-18 -27-28 13-1 Flims/Laax 10 600 28-01 34 30 14 Davos/Klosters 10 200 11-29 15 +2 Megève 10 100 18 29 13 16 +3 Courmayeur 9 800-16 -15-03 17-2 Engelberg 9 700-16 36 45 18-2 Andermatt/Sedrun 9 600 15 58 52 19 +4 Saas-Fee 9 300 143 23 34 20-2 Adelboden/Lenk 9 100-06 06 37 21 +3 Chamonix-Mont-Blanc 8 900 34 26 17 22-2 Crans-Montana 8 800-30 -14 26 23-1 Scuol 8 400 21-01 31 24-3 Arosa 8 400-18 -19 30 * Austria and Italy: price growth over 4 years Well above average Above average Average Below average Well below average No data Source: UBS 4
Key results Prices The report shows the asking prices per square meter of living space (single-family homes and condominiums) of an upmarket standard for the respective location The data does not allow for any differentiation between use as a first or second home The rate that prices change is annualized and relates to the upmarket home ownership segment of the market Historical price data is readily available for Switzerland and France For Italy and Austria, the five-year growth rate was extrapolated using the four-year growth rate The five most expensive Alpine destinations showed rising real estate prices last year In Engadin/St Moritz, second homes rose about 7 percent, while in the leading Austrian vacation destinations of St Anton am Arlberg and Kitzbühel, and in the French resort of Courchevel, prices increased around 5 percent Overall, prices rose in all French destinations included in the study, while the Italian locations of Courmayeur and Cortina d'ampezzo saw a slight correction The picture was more diverse for the Swiss destinations The top Valais locations of Verbier and Crans-Montana suffered the sharpest price drop compared to the previous year (around 3 percent) Small price corrections of just under 2 percent were recorded in Arosa and Engelberg Properties in Saas-Fee and in the Jungfrau region showed strong price gains Price increases were more moderate in Flims/Laax, Andermatt, Zermatt and Davos/Klosters, while prices stagnated in Lenzerheide and Adelboden/Lenk Top vacation apartment markets in the Alpine region Source: UBS 5
Market size The number of existing second homes determines the size of the market The average market size for the regions in the top price category is 5,500 units The total number of vacation apartments varies between slightly more than 10,000 units in Crans-Montana or Davos/Klosters to less than 2,000 vacation apartments in St Anton am Arlberg With almost 9,000 properties, Chamonix and Engadin/St Moritz are among the biggest vacation apartment markets Accessibility This indicator measures travel times by both private and public transport to airports, airfields, regional centers and major metropolitan areas The trend towards shorter but more frequent vacations and weekend trips generally favors easily accessible destinations Proximity to regional centers makes it easier to rent out a second home to locals, while proximity to an airfield is important for demand in the luxury segment Thanks to their proximity to major centers and airports, Kitzbühel, Chamonix, Engelberg and Megève have optimum accessibility and can be easily accessed by public transport In contrast, Val d'isére and Zermatt are less accessible Tourist facilities This indicator measures the availability of ski slopes and supporting facilities, including cross-country ski routes It also includes a measure of the certainty of snow and takes into account visitor assessment of the resort The availability of summer activities (summer lift facilities, golf courses or proximity to a glacier) also has a positive influence on the indicator The same applies to the outstanding tourist attractions such as the Jungfraujoch, Matterhorn or the Aiguille du Midi The breadth and availability of tourist activities helps to categorize destinations, but it is not a compelling argument for, or against, buying a vacation apartment While some vacation apartment buyers appreciate a wide range of activities, others prefer quieter locations The indicator does not take into account the close proximity of some destinations, which can greatly expand the range and availability of tourist activities/ facilities 1 Crans-Montana 2 Davos/Klosters 3 Chamonix-Mont-Blanc 4 Engadin/St Moritz 5 Flims/Laax 1 Kitzbühel 2 Chamonix-Mont-Blanc 3 Engelberg 4 Megève 5 Méribel 1 Engadin/St Moritz 2 Zermatt 3 Méribel 4 Courchevel 5 Davos/Klosters The range of the tourist facilities varies only moderately between the destinations we review and facilities are highly rated at all of the leading destinations Engadin/St Moritz, Zermatt, Courchevel and Méribel have the greatest range of facilities, while Scuol, CransMontana and Courmayeur lag slightly behind 6
Occupancy Occupancy relates to vacancy rates in the municipalities and not to the bed occupancy in the second homes Availability rates on a key date (number of advertised properties in relation to housing stock) and, if available, official vacancy rates, are used to calculate this indicator Second homes advertised for sale or as long-term rentals are recoded as vacant Vacancy rates averaged 32 percent across our focus Alpine region over the year By region, the average vacancy rate in Italy fell by one percentage point over the year, although at 37 percent, it remains the highest in the Alpine region A similar fall was seen in the Austrian Alps, although in this case only two out of 100 apartments are vacant on average In France, occupancy rates fell marginally, with the average vacancy rate standing at 3 percent 1 St Anton am Arlberg 2 Adelboden/Lenk 3 Lenzerheide 4 Engelberg 5 Zermatt Vacancy rates for all apartments averaged around 33 percent in the Swiss Alpine destinations The highest vacancy rates were recorded in the Valais Alps: in Ovronnaz, Crans-Montana, Leukerbad and Nendaz/ Veysonnaz, more than 5 percent of all apartments were vacant (in some cases significantly more) In Grisons, on the other hand, the vacancy rate is much lower The vacancy rate in Lenzerheide is just 12 percent, while in Scuol and Davos/Klosters it is 21 percent Letting prospects On assessing the let-ability of an apartment, we consider: i) letting prospects based on achievable returns when let short-term as a vacation home The indicator is based on figures from the agency platform Airbnb, with the analysis supplemented by average tourist visits and the level of hotel prices ii) the possibility of a long-term rental to a local is taken into account on the basis of yield figures and population trends Engelberg, the Jungfrau region and Zermatt, three locations with pre-eminent international attractions, offer above-average yields In Gstaad and Saas-Fee, on the other hand, the weak first home market puts pressure on letting properties The yields on tourist letting are also clearly below-average in these cases Population growth If the population increases in a municipality, there is greater scope for infrastructure spending and the municipality's finances are supported This also boosts the attractiveness of a destination for owners of second homes In general, the current population trend is likely to continue in the years to come Population growth is favored by location-related factors such as an attractive tax environment, a prosperous regional economy and convenient links to regional centers The permanent population should grow most strongly in Flims/Laax and Engelberg Rising demand for first homes is also expected in the vacation locations at Crans-Montana and Verbier in Lower Valais The outlook for the first home market in Andermatt/Sedrun and in 1 Engelberg 2 Zermatt 3 Jungfrau Region 4 Arosa 5 Flims/Laax 1 Flims/Laax 2 Engelberg 3 Verbier 4 Crans-Montana 5 Engadin/St Moritz 7
Saas-Fee, on the other hand, is weak These destinations suffer from emigration, poor accessibility from urban centers and relatively high income taxes Restrictive supply The new construction of vacation homes is severely restricted by the Second Homes Act However, the bigger the proportion of first homes without any restriction on usage in a municipality, the greater the potential for future new second homes In addition, if the current construction of first homes exceeds the expected population growth, the likelihood of repurposing the grandfathered stock of housing increases The potential for new second homes is relatively high in most Valais destinations A large number of first homes, a lack of municipal restrictions on use and high availability building-zoned land make the supply more flexible In many Grisons destinations, on the other hand, the potential for new second homes seems to be lower With increasing demand, higher price rises than in Valais are therefore possible 1 Engadin/St Moritz 2 Flims/Laax 3 Lenzerheide 4 Arosa 5 Scuol 8
Other vacation apartment markets in Switzerland In many Alpine vacation destinations residential property prices are well below 8,000 francs per square meter Nendaz/Veysonnaz is the biggest vacation apartment market, with 8,000 units, and offers the best tourist facilities among these destinations The tourist facilities in most of the smaller regions cannot compete with the top destinations for example the average ski area in the extended group of vacation apartment markets is only half as big as in the top locations Apart from Leukerbad and Villars-Gryon, the current price level everywhere is in excess of 2007's levels Compared to last year, however, price drops were recorded in around half of the destinations The largest correction of around 6 percent was seen in Anniviers The prices were also in decline at many destinations in Valais and Vaud In Hasliberg and Samnaun, on the other hand, prices rose significantly Source: Fotolia The number of vacant apartments is significantly elevated in some Valais destinations in the second price category In Ovronnaz, Leukerbad and Nendaz/Veysonnaz, for example, at least five out of 100 apartments are vacant In Grisons destinations and in Flumserberg and Wildhaus, on the other hand, vacancies remain manageable The letting prospects are above average in Villars-Gryon and Hasliberg In Flumserberg, as a typical one-day destination, one should not expect high income and occupancy rates In view of the high population growth in the vacation locations of Lower Valais and the Canton of Vaud, demand for first homes is likely to remain relatively robust In contrast, the outlook is not as rosy at destinations in Upper Valais and in Surselva Restrictive supply could benefit price rises for second homes in Breil/Brigels in the long-term Other Swiss vacation apartment markets Price category two: Price per square meter below 8,000 Swiss francs Prices Location characteristics Vacation destination Annual growth Level in CHF/m² 1yr 5yr 10yr Villars-Gryon-Les Diablerets 7 900 25-22 -02 Samnaun 7 800 128 02 08 Anniviers 7 700-64 -04 39 Val-d'Illiez 7 600 12-15 25 Hasliberg 7 300 164 40 48 Flumserberg 7 100 70 48 45 Breil/Brigels/Obersaxen 7 100-07 03 34 Wildhaus 6 500 76 41 43 Nendaz/Veysonnaz 6 300-16 -32 21 Leysin-Les Mosses 6 200-32 -16 10 Aletsch-Arena 6 100 38 05 22 Ovronnaz 6 000 41 01 23 Anzère 5 300-50 -13 09 Evolène 5 200-39 -22 07 Disentis/Mustér 5 100 30-02 08 Leukerbad 5 000-27 -34-20 Weit above überdurchschnittlich Well average Überdurchschnittlich Above average Market size Accessibility Durchschnittlich Average Market outlook Tourist facilities Occupancy Unterdurchschnittlich Below average Rental perspective Population growth Weit Well unterdurchschnittlich below average Restrictive supply ka Angaben keine No data Source: UBS 9
Appendix Ski slopes Altitude (m asl) Number of second homes Length in km Highest point Principal town in ski area Size Place Vacation 2018 destination Country: Region Closest large airport City Traveling time 2h 40min 1 Engadin/StMoritz 8 700 1 800 3 300 2 Gstaad CH: Bern 4 000 1 100 3 Courchevel FR: Savoy 5 200 1 900 3 200 Lyon 4 St Anton am Arlberg AT: Tyrol 1 800 1 300 2 800 5 Kitzbühel AT: Tyrol 5 800 800 2 000 Munich 1h 50min 6 Verbier 6 100 3 300 1h 50min 7 Val d'isère FR: Savoy 4 200 1 900 3 500 Lyon 2h 50min 8 Méribel FR: Savoy 6 400 3 200 Lyon 9 Lenzerheide 5 800 2 900 1h 50min 10 Jungfrau Region CH: Bern 5 500 1 000 11 Zermatt 4 300 1 600 3 900 2h 40min 12 Cortina d'ampezzo IT: Belluno 5 600 1 200 2 900 Venice 13 Flims/Laax 7 500 1 100 1h 50min 14 Davos/Klosters 10 500 1 600 2 800 15 Megève FR: Upper Savoy 7 300 1 100 2 400 1h 10min 16 Courmayeur IT: Aosta Valley 4 900 <50 1 200 2 800 1h 30min 17 Engelberg CH: Obwalden 2 700 1 000 1h 15min 18 Andermatt/Sedrun CH: Uri 2 100 1 400 1h 30min 19 Saas-Fee 2 600 1 800 3 600 2h 40min 20 Adelboden/Lenk CH: Bern 5 200 1 400 2 400 Basel 21 Chamonix-Mont-Blanc FR: Upper Savoy 8 900 1 000 3 300 1h 10min 22 Crans-Montana 10 700 2 900 23 Scuol 3 200 1 300 2 800 2h 50min 24 Arosa 4 200 1 700 2 900 25 Villars-Gryon-Les Diablerets CH: Vaud 6 800 1 300 1h 25min 26 Samnaun 600 1 800 2 900 3h 10min 27 Anniviers 4 400 28 Val-d'Illiez 4 500 1 100 2 300 1h 20min 29 Hasliberg CH: Bern 1 100 2 400 1h 30min 30 Flumserberg CH: St Gallen 2 700 1 200 2 200 1h 10min 31 Breil/Brigels/Obersaxen 3 400 1 300 2 400 32 Wildhaus CH: St Gallen 1 900 900 2 300 1h 25min 33 Nendaz/Veysonnaz 8 200 1 400 3 300 1h 50min 34 Leysin-Les Mosses CH: Vaud 2 300 1 400 2 300 1h 25min 35 Aletsch-Arena 3 500 1 900 2 900 Milan 2h 20min 36 Ovronnaz 1 600 <50 1 300 2 400 1h 40min 37 Anzère 2 100 2 400 38 Evolène 1 400 39 Disentis/Mustér 1 100 1 200 2 800 2h 20min 40 Leukerbad 2 600 1 400 2 600 10
List of sources Variable Soures Property prices (current and historic) Wüest Partner (Switzerland); Éditions Callon (France); Nomisma (Italy); immiat, UBS (Austria) Rents Wüest Partner Market size ARE (Switzerland); Insee (France); Istat (Italy); Statistik Austria, Statistik Tyrol, Statistik Vorarlberg (Austria) Conversion potential of first homes Information from municipalities Accessibility by private transport Google Maps Accessibility by public transport SBB, rome2riocom Occupation (vacancy and offer rates) FSO, comparisch (Switzerland); Insee, selogercom (France); immobiliareit, casait (Italy); immosuchmaschineat, immobilienscout24at, immodirektat (Austria) Ski slopes, facilities, cross-country ski routes Official websites and/or information of the destinations, Bergfex, myswitzerlandch Altitude of the resort, proximity to the glacier Official websites and/or information of the destinations, Bergfex Certainty of snow Official websites and/or information of the destinations, skiresortde, snowplazade, skigebiete-testde Thermal spas Official websites and/or information of the destinations and thermal spas, swissthermech Golf courses Official websites and/or information of the destinations and golf courses, Swiss Golf Facilities open in the summer Official websites and/or information of the destinations Building applications and approvals Docu Media Building zones Federal Office for Spatial Development (ARE) Development investment Federal Statistical Office (FSO) Overnight stays and hotel rooms Federal Statistical Office (FSO) Hotel prices Hotelleriesuisse Rental statistics Airbnb AirDNA Popoulation growth (forecasts) Federal Statistical Office (FSO), UBS Tax burden Swiss Federal Tax Administration (FTA) Regional economic potential UBS 11
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