UBS real estate study sees “dangerous trend”

Widespread confidence in the Swiss real estate market is showing signs of increasing strain, bank UBS has reported in its real estate focus for 2012.

Investors tend to see property as a safe asset and are pouring more money into it during these turbulent economic times. But UBS Research Switzerland sees this as a dangerous trend.

The report found that the fundamentals of the residential real estate market remained strong with interest rates lower than ever before. Other boosts come from population and household income growth.

But strain has been seen in the fact that prices for blocks of flats have risen by an average 35 per cent in Switzerland over five years, leading to some calling the property market overheated, UBS said in a statement.

The market “does not seem poised at the brink of a downward spiral in 2012”, it noted.

“However, it seems equally unlikely to calm down, even though it has become even more dramatically imbalanced in recent years owing to a dangerous concoction of distorted interest rates, overly optimistic investor expectations, a grim outlook in the eurozone and a dearth of investment alternatives.”

UBS expected prices to rise by another four per cent for blocks of flats and 3.5 per cent for single family homes over the next year, despite the deteriorating economy.