The UBS Swiss Real Estate Bubble Index rose significantly in the second quarter of 2015 and now stands at 1.37 index points. Home prices and mortgages for private households went up disproportionately considering the weak economy. Furthermore, the housing market is still caught up in the investment property boom.

Zurich/Basel, 04 August 2015 – The UBS Swiss Real Estate Bubble Index stood at 1.37 points in the second quarter of 2015. That means the index rose a significant 0.10 points within the risk zone compared to the previous quarter – the biggest increase since the fourth quarter of 2012. The mortgage volume of private households expanded around 3.5% year-on-year, while home prices showed a nominal increase of nearly 2%. While these growth rates appear rather moderate in a historical comparison, they are comparatively high given the shrinking economic output and the significant decline in consumer prices. The general flattening of debt and price momentum, which had started in the beginning of 2014, also stopped in the past half year.

The buy-to-rent ratio once again went up slightly in the previous quarter as rents continued to level off while condominium prices went up. Remarkably, the rents for new buildings dropped 3% year-on-year. 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. Loan applications for non-owner-occupied condominiums remained near their all-time-high in the second quarter of 2015.

The index increase confirms that we are far from giving an all-clear signal for the housing market. Not only do low mortgage rates continue to fuel high demand for owner-occupied homes, but investor demand for real estate has also gained considerable weight in the home market. However, housing prices are expected to resume trending downward in line with the business cycle in the second half of 2015.

The risk map has changed to reflect the increase in the real estate bubble index. The Lucerne region has joined the ranks of exposed regions due to increased imbalances. Lucerne currently shows the strongest price growth rates of all the exposed regions except Innerschwyz. Appenzell Innerrhoden – where prices have risen nearly 70% in the last 10 years – has now joined the monitored regions.

UBS Swiss Real Estate Bubble Index – 2Q 2015

Methodology
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 monitored regions
Our selection of exposed regions is tied to the level of the UBS Swiss Real Estate Bubble Index and is based on a multi-level selection process utilizing regional population and property price data.

 *in the previous quarter classified as monitored region; **added in Q2 2015

Regional risk map – 2Q 2015

UBS Switzerland AG


Contacts

Claudio Saputelli, Head CIO WM Swiss & Global Real Estate
Tel. +41-79-513 50 45

Dr. Matthias Holzhey, Economist CIO WM Swiss & Global Real Estate
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 4 November 2015.

www.ubs.com