Zurich, 4 February 2016 – The UBS Swiss Real Estate Bubble Index ended last year in the risk zone at 1.41 index points. It rose 0.07 points from 3Q15 thanks to an increase in outstanding mortgage loans. Household mortgage debt was 3.2% higher than in 2014. Although debt growth slowed in the fourth quarter to its lowest rate since 2008, it was the highest relative to household income in the last five years. We estimate that the disposable income of all households declined last year by around 0.5%.

House prices also drove up the index. They rose 0.5% from the previous quarter and around 2% on the year. Adjusted for inflation, the rate of increase was only 1 percentage point above the average of the last two years, however. The index was kept in check by minimal construction investment and a further drop in the percentage of applications for buy-to-let mortgage loans at UBS. A significant decline in home buying is not anticipated given continued low interest rates.

First signs of overheating in eastern Switzerland

The highest price rises for homes shifted last year from the center of the country to the periphery. Eastern Switzerland, with a 4-6% increase, swung to the top, and the regions of Thurtal, Upper Thurgau and Linth appeared for the first time on the risk map. In addition, after above-average price rises, Lugano became an exposed region as well, and Baden became a region that will be monitored.

In contrast, the tourism regions, where oversupply and the strong Swiss franc are squeezing prices, came under pressure. Falling prices there led to Davos and the Upper Engadine regions being downgraded to monitoring regions, as the risk potential there has plummeted.

UBS Swiss Real Estate Bubble Index – 4Q 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 Q4 2015; *** in the previous quarter classified as exposed region

Regional risk map – 4Q 2015

UBS Switzerland AG

 

Contacts

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: www.ubs.com/swissrealestatebubbleindex-en.

The next date of publication for the UBS Swiss Real Estate Bubble Index is 4 May 2016.


www.ubs.com