BERN: The property market in Switzerland, which is moving ahead while the economy shrinks, is facing the greatest threat of an economic bubble since 1991, according to UBS.
The regions of Zurich, Lucerne and Lake Geneva are most at risk, the Swiss bank said in a quarterly study on Tuesday. Negative interest rates had created excess demand for property as an investment, it said, bringing the housing market back into focus for the Swiss National Bank (SNB). Loan applications for second homes hit their highest on record in the second quarter.
UBS expressed surprise that prices continued to increase in spite of the strong franc, which was triggered by the removal of the franc-euro exchange rate peg in January – house prices climbed almost 2%. In addition, the mortgage volume of private households rose 3.5%.
While the gains are moderate historically, they are high in relation to shrinking Swiss economic output and a sharp drop in consumer prices, and in relation to the expected economic impact of the strong franc.
“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,” UBS said on its Swiss Real Estate Bubble Index.
