Zurich, 7 August 2018 – At 1.00 point, the UBS Swiss Real Estate Bubble Index was only just in the risk zone in the second quarter of 2018. This means the bubble risk for the owner-occupied home market has clearly receded in the course of a year. There was a slight correction in owner-occupied home prices despite high economic growth and rising consumer prices. For example, there was a further drop in prices for owner-occupied flats. Compared to the previous year, prices have already fallen by 2.6 percent. However, nominal economic output increased by 2.8 percent in the same period and consumer prices were also over 1 percent higher. As a result, five of the six sub-indicators declined in the last quarter. For example, the price-income ratio sank for the sixth time in a row and is now the same as three years ago.
Sustainability risks still high
Despite developments in recent quarters, price-driven sub-indicators continue to point to affordability risks. For example, the real price level and the purchase-price-to-rent ratio, as well as the price-income ratio, are close to the values seen during the last real estate bubble at the end of the 1980s. However, the real estate bubble risk is greatly reduced by the slower pace in granting mortgage loans and the economy's relatively low dependence on the construction industry.
SNB sees acute risks
The changes in the real estate bubble index show a cooling-off in the owner-occupied market and indicate an end to the current property cycle. However, in its recently published financial stability report, the Swiss National Bank (SNB) warned of an acute increase in imbalances in the market for owner-occupied flats. This difference in perception is primarily due to the use of different price indices. But when observed over a long period, the divergence in the last several quarters disappears: the indices have practically stagnated since negative interest rates were introduced three-and-a-half years ago.
Price boom in Nidwalden
Nidwalden is now one of the risk regions, while Morges is no longer one of them. Currently, Nidwalden is the region with the highest price increases in Switzerland. Prices there have gone up by more than 15 percent in the past three years.
UBS Swiss Real Bubble Index – 2Q2018
Regional risk map – 2Q2018
Risk regions for the Swiss residential property market and regions with a price correction of more than 5 percent since 2015
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 2 November 2018.
UBS Switzerland AG
Claudio Saputelli, Head Swiss & Global Real Estate, Chief Investment Office WM
Phone +41-79-513 50 45, firstname.lastname@example.org
Dr. Matthias Holzhey, Head Swiss Real Estate Investments, Chief Investment Office WM
Phone +41-44-234 71 25, email@example.com
Maciej Skoczek, Swiss & Global Real Estate Analyst, Chief Investment Office WM
Phone +41-44-234 68 09, firstname.lastname@example.org