The latest UBS Swiss Real Estate Bubble Index published this week shows several regions at risk of overheating property prices.
The regions highlighted as exposed include Basel, Lausanne, Vevey, parts of the Vaud Alps, Lugano, Nidwalden, Luzern, Zug and the Zurich region, all parts of Switzerland where there is plenty of high paid work.
Lausanne, Basel, Zug, Luzern and parts of the Zurich region are described as having fundamental risk, while Vevey and Lugano are described as having liquidity risk. Other regions, such as Geneva, Basel, Zurich and Zug are shown as being at risk of overheating.
During the second quarter of this year, residential property prices across Switzerland rose 5.4% year on year, with steepest rises recorded on stand alone houses (+6.3%) rather than apartments (+4.5%). UBS said that this is the largest price increase in eight years and that it exceeds growth in average income. Before Covid-19, the average price of a residential property was just under 6.5 times annual income. Today, it is around 7.1 times annual income, pushing home buying further out of reach for those trying to enter Switzerland’s expensive home market.
Switzerland has strict rules on how much can be borrowed to buy a home. Many banks will only lend up to around 5 times the borrower’s gross salary. Someone with an income of CHF 100,000 aiming to buy a home costing 7.1 times their salary (CHF 710,000) would need to come up with a deposit of CHF 214,000 according to the UBS mortgage calculator.