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No bubble in Swiss property market

Even Michael Schumacher thinks Swiss houses are worth the price... Keystone Archive

The Swiss housing market offers good value for money both in domestic and international terms, according to a report published on Thursday.

This content was published on October 28, 2004 - 18:06

It says the recent house-price boom in many countries has “passed Switzerland by”, with typical prices in Zurich and Geneva now below those in cities such as Paris and Munich.

The report, “Making the Property Market Transparent”, was presented by the Zurich Cantonal Bank – Switzerland’s third-largest bank – at a conference in Zurich.

“The main finding is that when we compare price levels here with those in other countries, particularly the US or Britain, we see that our market is fairly valued,” Charles Stettler, head of the bank’s private customers branch, told swissinfo.

“We have had significant growth in the housing market in recent years, but the increase in prices in the past five to seven years has been only about five to seven per cent.”

“I think what makes our market different is that Swiss residential estate owners still have in mind the experience of the end of the 1980s, when they made big losses.”

Long memories

Stettler said many developed countries had experienced a major housing boom in recent years, with Ireland in particular seeing annual price increases of 16 per cent a year since 1997.

He said house prices in the main Swiss population centres of Basel, Zurich and Geneva were now “slightly cheaper” on average than those in foreign cities such as Paris and Munich.

The bank said that compared with increases in real wages over the same period, property in many developed countries was now clearly overvalued, and the risk of a sudden slump – with potentially devastating economic consequences – was real.

However, it added that the same risk did not apply to Switzerland, as two key value indicators – the price-earnings (P/E) ratio and the risk premium – showed that Swiss property prices were below their historical average in domestic terms and “moderate to cheap” in international terms.

Both indicators are extrapolated from measurement ratios more commonly used on the stock and bond markets.

Pricing risk

In property-market terms, the P/E ratio is the relationship between the purchase price of a house and the cost of renting it for 12 months.

The current national average is 21.8, compared with a high of 28 during the boom years of the 1980s.

The risk premium reflects the profit homeowners expect to make over and above the interest from a “risk-free” investment, such as bonds. Generally speaking, the higher the P/E ratio, the lower the risk premium.

A ratio of mortgage-related costs to families’ total income – another key indicator – is the lowest it has been since 1980.

Based on a mortgage rate of five per cent – in the middle range of Swiss historical averages – nearly every second household in canton Zurich could now afford to purchase a house.

swissinfo, Chris Lewis in Zurich

In brief

A report by the Zurich Cantonal Bank says the recent global house-price boom has “passed Switzerland by”.

Swiss property prices are now below their domestic historical average – and “moderate to cheap” in international terms.

Despite relatively slow economic growth, the number of Swiss families who could afford to buy is steadily rising.

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Key facts

Economists are worried about the risk of a sudden end to the recent house price boom in many developed countries.
The economic impact of such a slump could outweigh that of a stock market collapse, as far more people own property.
While Swiss prices might not be directly affected, the country is highly sensitive to international economic trends.

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