Swiss real estate bubble index rises significantly

The UBS Swiss Real Estate Bubble Index rose significantly in the second quarter of 2015 and now stands at 1.37 index points.

The report says that the housing market is still caught up in an investment property boom. House prices and private household mortgages went up disproportionately relative to Switzerland’s weak economy.

The Index rose 0.10 points to 1.37 in the second quarter of 2015 pushing it further into the risk zone – a reading above 1.00 is considered risky.

The general leveling off of mortgage debt and home prices that took place in 2014 gave way to increases in the first half of 2015. Private household mortgage volume increased by 3.5% year-on-year and home prices went up 2%. While these increases might seem moderate, they are considered high given the context of shrinking economic output and declining consumer prices.

The report flags 17 regions as ‘exposed’ – regions with high potential for price correction and a further 9 as ‘monitored’ – regions with increased potential for price correction.

Those listed as ‘exposed’ include:

– Zürich
– Glattal-Furttal
– Limmattal
– Zimmerberg
– Pfannenstiel
– Innerschwyz
– Zug
– Davos
– Oberengadin
– Basel-Stadt
– Lausanne
– Morges
– Nyon
– Vevey
– Geneva
– Luzern

Those listed as ‘monitored’ include:

– Knonaueramt
– Zürcher Oberland
– Winterthur
– Locarno
– Lugano
– Saanen-Obersimmental
– St.Gallen
– Nidwalden
– Appenzell I.Rh.

According to the report, one driver of real estate investment is the scarcity of investment opportunities in a negative interest rate environment – the Swiss National Bank charges interest on most deposits placed with it.

Despite rising property prices, rents dropped by 3% year-on-year. This combined with higher prices makes buy-to-let investments less attractive.

The report’s authors expect housing prices to resume trending downward in line with the business cycle in the second half of 2015.

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