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UBS warns of higher Swiss real estate risks

Malcolm Curtis · 7 Nov 2013, 13:50

Published: 07 Nov 2013 13:50 GMT+01:00

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The bank’s real estate “bubble index” rose to 1.20 for the third quarter of 2013, up from 1.15 in the second quarter and from 1.01 a year earlier, the report said.

“Residential real estate prices and mortgage debt continued to grow much more strongly than economic output and household incomes,” UBS said.

“The risks have thus risen further,” the bank warns.

The index tracks six variables related to the Swiss real estate market.

These include the relationship between purchase and rental prices, house prices and household income, house prices and inflation and mortgage debt and income.

It also looks at the relationship between construction and the country’s Gross Domestic Product (GDP) and the proportion of credit applications by UBS clients for residential property for investment purposes (not for owner occupancy).

The index has steadily climbed from a level of 0.19 in the second quarter of 2010.

Switzerland last experience a property bubble in 1989, followed by a slump that bottomed out in 2001

The UBS classifies an index level of between zero and one as signifying a real estate “boom”, while a level between one and two shows “risk” and two and above a bubble.

A level between minus one and zero is considered “balanced”, while below mins one is considered a “slump”.

The Swiss National Bank has indicated its concern with high real estate prices in Switzerland for more than year.

UBS said the rise in the bubble index for the third quarter of 2013 was driven by prices for residential property jumping 4.2 percent year-on-year.

Story continues below…

At the same time, asking prices for rents increased 3.3 percent so “the price gap between opwner-occupied and rented properties opened wider”.

The bank calculates that the number of annual rents required to buy a home is now 28.3 on average.

Despite the gap, demand demand for Swiss condominiums as investment properties remained high, UBS said.

For the complete report, check here.  

Malcolm Curtis (news@thelocal.ch)

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