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UBS Swiss Real Estate Bubble Index displays moderate risk increase
The UBS Swiss Real Estate Bubble Index currently stands at 1.17. Although the rise was weaker than in previous quarters, the risk of a correction heightened on the residential real estate market.
Zurich/Basel, 3 May 2013 – The UBS Swiss Real Estate Bubble Index remained in the risk zone and currently stands at 1.17, representing an increase of 0.06 index points compared to the previous quarter. The rise in the index is due to continuing price increases for residential real estate and to an increase in mortgage loans alongside stagnating household incomes and consumer prices. In contrast, the slightly declining significance of the construction industry has a dampening effect on the Swiss economy. Thus the increase in building permits and the rise in the number of new construction projects are not (yet) manifested in the level of construction investment.
The largely uninterrupted rise in risks on the real estate market in the past four years goes on. At the end of 2008 the index was still in the balance zone with –0.72 points and ever since has risen on average each quarter by 0.11 index points. During this time frame, Switzerland sported the strongest price increases for residential real estate of all European countries with more than 20% in real terms.
The high number of loan applications for real estate not intended for personal use continues to give reason to be cautious. Condominium and single-family home purchases for rental purposes appears undeterred in its high interest. But in view of the unfavorable ratio of purchase to rental price and a gross yield of just 3.5% in Switzerland on average, these investments will only be profitable with continued low interest rates or if prices rise further.
The regions of Lucerne, Innerschwyz and Glattal-Furttal are now counted among the risk regions. The recent rise in the UBS Swiss Real Estate Bubble Index in the past quarter was a crucial factor. Lucerne and Innerschwyz are among the regions with the strongest growth in prices of all economic regions since 2009. The region of Glattal-Furttal reported a slightly weaker rise in prices, but is already among the 20 regions throughout the country with the highest price levels. This means that more than 2.5 million people, or around 30% of the total population, are already living in risk regions.
Depending on its current value, the index falls into one of the following risk categories: slump, balance, boom, risk and bubble. These categories are specifically defined and ranked in order of risk. The UBS Swiss Real Estate Bubble Index comprises six sub-indices that track: the relationship between purchase and rental prices, the relationship between house prices and household income, the development of house prices relative to inflation, the relationship between mortgage debt and income, the relationship between construction and gross domestic product (GDP), and the ratio of loan applications filed for intended rental properties to total loan applications filed by UBS private clients.
Selecting exposed and monitoring regions
The number of risk regions grew in the first quarter of 2013. The regions of Lucerne, Innerschwyz and Glattal-Furttal are now counted among the exposed regions. The crucial factor was the recent rise in the UBS Swiss Real Estate Bubble Index in the past quarter.
Furthermore, the MS-regions of Zurich, Geneva and Lausanne remain among Switzerland's riskiest due to their national importance. Other exposed regions include the large metropolitan areas of Zug, Pfannenstiel, Limmattal, Zimmerberg, March, Unteres Baselbiet, Vevey, Morges and Nyon as well as the tourist regions of Davos, Saanen-Obersimmental and Oberengadin. Alongside Appenzell Innerrhoden and the Prättigau Valley, Nidwalden, Basel-Stadt and Knonaueramt all fall into the category of monitored regions.
Claudio Saputelli, Head of CIO WM Swiss & Global Real Estate Research
Tel. +41 79 513 50 45
Dr. Matthias Holzhey, Economist CIO WM Swiss & Global Real Estate Research
Tel. +41 44 234 71 25
The UBS Swiss Real Estate Bubble Index report is available on the Internet via this link: www.ubs.com/swissrealestatebubbleindex-en.
The next date of publication for the UBS Swiss Real Estate Bubble Index is 5 August 2013.
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