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(Bloomberg) -- Risks to the Swiss real estate market stayed elevated in the fourth quarter amid the central bank’s loose policy.

The UBS Swiss Real Estate Bubble Index fell a notch to 1.28 points in the three months through December from 1.29 points, according to a statement from UBS AG today. A reading above 2 indicates a bubble.

“Slightly stronger fundamentals and weaker mortgage growth helped deflate the real estate bubble index,” Matthias Holzhey and Claudio Saputelli at UBS in Zurich said. “The growing scarcity of investment opportunities, however, led to a marked increase in demand for real estate investments.”

The Swiss National Bank’s expansive monetary policy has kept down the cost of taking out a mortgage, leading to a strong increase in residential property prices. To prevent Switzerland from suffering a property market crisis similar to that of the 1990s, the government has required banks to build up capital to make them more resilient to writedowns.

That so-called countercyclical buffer was doubled to 2 percent of mortgage-related assets last year. The measure, which the government implemented at the behest of the SNB, can be raised as high as 2.5 percent.

According to the UBS index, 17 regions are especially risky, unchanged from the previous quarter.

Two decades ago, an overheating of the real estate market led to bank failures -- including Spar- und Leihkasse Thun and Solothurner Kantonalbank -- and caused a recession.

The UBS real estate index comprises six sub-indicators tracking the relationships between purchase and rental prices, house prices and household income, house prices and inflation, mortgage debt and income, construction and GDP, and the proportion of credit applications by UBS clients for residential property not intended for owner occupancy.

--With assistance from Joel Rinneby in Stockholm.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Zoe Schneeweiss