The property market in Switzerland, which is moving ahead while the economy shrinks, is facing the greatest threat of an economic bubble since 1991, according to UBS.
The regions of Zurich, Lucerne and Lake Geneva are most at risk, the Swiss bank said in a quarterly study on Tuesday.
Negative interest rates had created excess demand for property as an investment, it said, bringing the housing market back into focus for the Swiss National Bank (SNB). Loan applications for second homes hit their highest on record in the second quarter.
UBS expressed surprise that prices continued to increase in spite of the strong franc, which was triggered by the removal of the franc-euro exchange rate peg in January – house prices climbed almost 2%. In addition, the mortgage volume of private households rose 3.5%.
While the gains are moderate historically, they are high in relation to shrinking Swiss economic output and a sharp drop in consumer prices, and in relation to the expected economic impact of the strong franc.
“While lower rents push down returns on real estate investments, the overheating market for investment properties has spilled over into the home market given the scarcity of investment and the negative interest rate environment,” UBS said on its Swiss Real Estate Bubble Index.
The index rose to 1.37 points in the second quarter, up from 1.31 in the first three months of 2015 and its highest level since the first quarter of 1991.
Readings between zero and 1.00 are categorised as a boom, while anything higher is seen as a risk. Readings above 2.00 are categorised as a bubble.
At its most recent monetary policy meeting in June, the SNB said imbalances in the housing market had not yet begun to even out.
The central bank, government and mortgage lenders have come up with a variety of measures to combat rising property prices, which have also been spurred by immigration and Switzerland’s appeal as a safe haven for financial investors.
The government provides no official data on the housing market.
swissinfo.ch and agencies