Swiss market on track for housing bubble
If it stays on its current trend, the Swiss real estate market will experience a housing bubble by the end of 2014 (Keystone)
The Swiss real estate market crept closer toward a bubble in 2012, according to the latest numbers from UBS. Swiss property values went up 6.3 per cent through September 2012, compared with a 1.8 per cent decline in the eurozone.
The UBS Real Estate Bubble Index indicates the risk of an overheating housing market on a multiple-point scale, with anything over two points indicating a bubble.
UBS also announced Monday that in 2012, Switzerland’s property market reached a reading above one on the scale for the first time since 1991 with a score of 1.02 in the third quarter. The index climbed again in the fourth quarter of last year, to 1.11 points.
If the current trend continues, Switzerland will reach a level on the index indicating a housing bubble by the end of 2014.
“The latest recovery in financial markets and the lessening propensity of investors to seek safe havens could slow down the sharp rise in real-estate prices in the current quarter,” UBS said in the statement. “The majority of demand, however, is domestic, which means that without a significant increase in long-term interest rates, the trend is unlikely to be reversed.”
In July, the Swiss government introduced rules to cut mortgage-lending risks in order to stave off a potential bubble. The new rules allow the Swiss National Bank (SNB) to raise capital requirements for banks in order to keep key parts of the credit market in check.
But, the SNB’s policy of pegging the franc at SFr1.20 to the euro has made reigning in a possible housing bubble more difficult. Foreign investors also flocked to Switzerland’s market as a result of the stable currency, and locals chose to buy domestic property because of the euro’s weakness.
The Swiss real estate market has also been consistently hot in markets like Zurich and Geneva, where an influx of foreign workers taking advantage of the stable economy have driven vacancies down and rents up.
According to the real estate firm Wuest & Partner AG, the median rent in Zurich was up two per cent from the previous year at the end of 2012, at SFr310 ($340) per square metre.
In addition to Zurich and Geneva’s hot markets, UBS also named the regions of Appenzell Inner Rhodes, Lucerne and Prättigau in canton Graubünden at higher risk for a real estate bubble.