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Real estate bubble index falls

Zurich Media Releases Switzerland

The UBS Swiss Real Estate Bubble Index stood at 1.38 points after a slight decrease in the first quarter of 2016. Stagnating nominal home prices and a slowdown in household debt growth dampened the housing bubble index. Demand for buy-to-let investments declined for the fourth quarter in a row.

Zurich, 4 May 2016 – The UBS Swiss Real Estate Bubble Index was in the risk zone in 1Q 2016 at 1.38 index points. The index decreased 0.03 points over the previous quarter. The decline was driven by stagnating nominal home prices, shrinking demand for condominiums as investment properties and slower loan volume growth. Year-on-year growth in mortgage volumes dropped to 2.9%, its lowest level in 15 years. Persistently weak income growth, however, prevented any significant leveling of imbalances in the housing market for the time being.

Declining rents in the first quarter of 2016 led to an increase in the buy/rent ratio. Rents for new buildings in particular came under significant pressure, largely due to dropping interest rate expectations. The lower interest rates have depressed demand for rental apartments, since they make purchasing a home cheaper than renting in most of Switzerland's municipalities. At the same time, the investment crisis is encouraging investors to continue building rental housing at a rapid rate. Since net migration will likely be 15–25% lower in 2016 than the year before, depending on the language region, vacancies will likely increase further throughout Switzerland, and rents for new buildings will likely continue to fall.

This trend – declining rents and increasing vacancies – has made buy-to-let investments much less attractive. As a result, the share of applications for buy-to-let condominiums has declined slightly for the fourth quarter in a row. Still, buy-to-let investments remain highly popular, accounting for 17.7% of all loan applications.

UBS Swiss Real Estate Bubble Index: 5 years on

The housing market situation has clearly intensified since the UBS Swiss Real Estate Bubble Index was first published in May 2011. Since then, the index has increased from 0.63 to 1.38 index points, with a significant increase in all its sub-indices. It now takes 6.2 annual household incomes to purchase an average home, up from 5.5 in 2011. Likewise, 29 annual rents are now needed to purchase a comparable condominium, as opposed to only 27.5 annual rents in 2011. Household mortgage debt grew from 170 to 190% of disposable income in the same period.

The current index level in the risk zone points to an overvalued market. The housing market has not followed the typical pattern of a real estate bubble – such as exploding prices and debt – since 2011, but this should not be interpreted as an all-clear signal. The observed weakening of prices since 2014 is attributable to established lending restrictions and expanding supply. However, this should not obscure the fact that over the last five years, the housing market has grown far more dependent on low interest rates, and has become much more exposed to deteriorating conditions in the real estate market.

UBS Swiss Real Estate Bubble Index – 1Q 2016

Regional risk map – 1Q 2016

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.

UBS Switzerland AG



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

Dr. Matthias Holzhey, Head Swiss Real Estate Investments, Chief Investment Office WM
Tel. +41-44-234 71 25

The UBS Swiss Real Estate Bubble Index report is available on the Internet via this link:

The next date of publication for the UBS Swiss Real Estate Bubble Index is 3 August 2016.