Zurich, 8 May 2018 – At 1.10 points, the UBS Swiss Real Estate Bubble Index lay in the risk zone in the first quarter of 2018 following a significant decrease. The Real Estate Bubble Index thus fell for the third consecutive year. Both the owner-occupied housing market and the mortgage market continued to cool in the first quarter of the year. At the same time, Switzerland posted above-average real economic growth of 0.6 percent quarter-on-quarter, and consumer prices also increased significantly. By contrast, demand for buy-to-let investments remains high and the ratio between purchase and rental prices also points to a persistently unhealthily high interest rate dependency on the owner-occupied housing market.

Falling owner-occupied housing prices despite a booming economy

The buoyant economy helped boost demand for residential property, but slightly rising mortgage rates, tight economic viability and fiercer competition for vacant rental housing prevented higher prices. Single-family homes increased slightly in price by 0.1 percent compared to the previous quarter, but owner-occupied housing prices fell by 0.9 percent. Compared to the previous year, condominiums recorded the biggest decline since 1998 at minus 2 percent. In addition, the growth of households' mortgage debt in the banking sector declined again, rising by 2.5 percent year-on-year to below the expected nominal economic growth of 3 percent for the year as a whole.

Economic viability virtually unchanged since 2016

However, the imbalances on the owner-occupied housing market did not just decrease quarter-on-quarter. In retrospect, revised data from the Federal Statistical Office show a significantly more positive development in household incomes than previously assumed following the abolition of the minimum CHF exchange rate in early 2015. The bottom line is that the price-income ratio has not deteriorated further since mid-2016.

UBS Swiss Real Estate Bubble Index – 1Q/2018

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.

Prices in Basel are booming

The risk map has also changed to reflect the decrease in the real estate bubble index. Thus, the regions of Lucerne and Zurich Oberland no longer count as exposed regions. In the group of exposed regions, Basel-City currently has the highest growth rates - thus, the price level is 15 percent higher than in 2015.

Regional risk map – 1Q/2018

Risk regions for the Swiss residential property market and regions with a price correction of more than 5 percent since 2014

The UBS Swiss Real Estate Bubble Index report is available on the Internet via this link: www.ubs.com/swissrealestatebubbleindex-en.

The index is published on a quarterly basis. The next date of publication for the UBS Swiss Real Estate Bubble Index is 7 August 2018.


UBS Switzerland AG


Media contact

Claudio Saputelli, Head Swiss & Global Real Estate, Chief Investment Office WM
Phone +41-79-513 50 45,
claudio.saputelli@ubs.com

Dr. Matthias Holzhey, Head Swiss Real Estate Investments, Chief Investment Office WM
Phone +41-44-234 71 25,
matthias.holzhey@ubs.com


www.ubs.com