Interview with Vincent Clapasson, Partner at Wüest Partner and Head of the Geneva Office

What are currently the main obstacles facing real estate players in Switzerland?
On the one hand, there is a shortage of supply, due in particular to construction activity that is not sufficiently replenishing the stock. This is linked to delays and postponements from 2022 and 2023, when interest rates were high, as well as to regulation, objections, lengthy permit approval processes and the scarcity of land. On the other hand, some market participants are facing difficulties in securing financing, as banks are applying stricter rules, particularly with regard to higher equity requirements.

In recent years, access to bank credit appears to have become more complex, particularly due to the tightening of prudential rules applied by banks. Is this a phenomenon you are also observing in the market?
We have indeed observed difficulties for some developers in securing financing. The disappearance of Credit Suisse, Switzerland’s second-largest bank, and the absorption by competitors is not as straightforward as one might have imagined. This is due to very large credit volumes and rising prices, which require an even higher mortgage base.

In your view, does this development represent an additional challenge for developers, investors and property owners in Switzerland?
Yes, it does represent an additional challenge, as it is difficult for a developer to invest substantial equity solely in medium-sized to large projects. Property prices – whether for land, condominiums, single-family homes or apartment buildings – are such that only large institutional investors and funds can purchase using equity alone.

In view of this increasing complexity in bank financing, do you see other financing solutions emerging? If so, which ones?
We are seeing private debt funds, or simply private debt solutions such as junior debt and mezzanine loans, emerging from various types of entities that appear to be well equipped to meet the needs of real estate clients.

In this context, are you seeing growth in private real estate debt in Switzerland? How is this growth manifesting itself in concrete terms?
Yes, I am seeing an increase in lending volumes through private debt, as well as the emergence of new players in the market, in addition to established funds such as the Property ONE Real Estate Debt Fund. However, not all of them target the same client base or have the same risk appetite.

In your view, are real estate professionals in French-speaking Switzerland sufficiently familiar with private debt solutions and alternative financing?
Probably not, as the market and the way it functions remain very traditional, with a main bank relationship and conventional lending. In this respect, German-speaking Switzerland seems more mature to me.

Is there still educational or awareness-building work to be done among market participants regarding these solutions?
I think the difficulty with such solutions lies in the stability, durability and solvency of the lending entities. They need to be able to communicate clearly about the volume of loans they can provide, their process for analysing risks and collateral, their governance, and so on.

How do you see the future balance between traditional bank financing and alternative credit solutions? Is it more a question of competition, complementarity or a new division of roles?

I see it as a perfectly complementary system. Given the constant rise in prices, the difficulties in finding land and developing projects, alternative yet complementary solutions seem very well suited. A form of competition with banks? Certainly not when we consider the mortgage volumes of the major Swiss banks such as UBS, Raiffeisen and the cantonal banks.

What conditions would be necessary to facilitate access to financing and support the continued development of real estate in Switzerland?
A clear structure that provides guarantees both to clients and to supervisory authorities, as well as very good communication, are key elements. It should also be noted that private lenders do not all have the same level of available liquidity, and that this is often the central point.

Finally, if you had to identify one major challenge for the real estate market in Switzerland over the next 12 to 24 months, what would it be?
It is difficult to mention only one challenge. However, the shortage of supply, regulatory and administrative challenges, and the more uncertain economic environment are decisive factors in the current period.