Swiss property market at risk of overheating
The property market in Switzerland, one of the most expensive globally and heavily sought-after by foreign buyers, is at rising risk of overheating, according to a statement by Swiss bank UBS issued on February 5.
The UBS Swiss Real Estate Bubble Index rose to 1.23 points in the fourth quarter from 1.2 points in the third, the bank said. A reading above 2 indicates a bubble. The Swiss National Bank’s policy of zero rates, in place since August 2011, has kept down the cost of taking out a mortgage. Coupled with high immigration from neighbouring European countries that has fueled a strong increase in real estate prices in Switzerland, Bloomberg reported.
Growth in mortgages has exceeded that of economic output since 2009, and last year price gains of homes and apartments outstripped advances in incomes, according to the central bank. Concerned Switzerland could fall victim to a real estate crisis similar to that of the 1990s, the government last year forced banks to build up a countercyclical buffer of 1 per cent of mortgage-related assets. After that failed to prevent a further deterioration of the mortgage market, it last month doubled the requirement to 2 percent. Even so, it refrained from raising it to the maximum 2.5 per cent. Banks have until June 30, 2014, to comply.
According to the UBS index, 17 regions are considered particularly risky, with the Martigny region in western Switzerland being added this quarter.
Tackling property-market imbalances via interest rates is not an option for authorities at the moment. The benchmark interest rate must stay at zero so as not to jeopardize the cap of 1.20 per euro set on the franc in 2011, SNB Vice President Jean-Pierre Danthine said in a newspaper interview this month. Rules governing whom banks may lend to may also get tightened, the SNB said last month when it announced the increase to the buffer.
Two decades ago, an overheating of the real estate market caused bank failures and pushed the economy into recession. Since 2008, mortgages outstanding to Swiss private households have increased 25 percent and apartment prices have risen 28 percent, data published by the central bank shows.
The property market in Switzerland, one of the most expensive globally and heavily sought-after by foreign buyers, is at rising risk of overheating, according to a statement by Swiss bank UBS issued on February 5. The UBS Swiss Real Estate Bubble Index rose to 1.23 points in the fourth quarter from 1.2 points in the third, the bank said. A reading above 2 indicates a bubble. The Swiss National Bank’s policy of zero rates, in place since August 2011, has kept down the cost of taking out a mortgage. Coupled with high immigration from neighbouring European countries that has fueled...
The property market in Switzerland, one of the most expensive globally and heavily sought-after by foreign buyers, is at rising risk of overheating, according to a statement by Swiss bank UBS issued on February 5.
The UBS Swiss Real Estate Bubble Index rose to 1.23 points in the fourth quarter from 1.2 points in the third, the bank said. A reading above 2 indicates a bubble. The Swiss National Bank’s policy of zero rates, in place since August 2011, has kept down the cost of taking out a mortgage. Coupled with high immigration from neighbouring European countries that has fueled a strong increase in real estate prices in Switzerland, Bloomberg reported.
Growth in mortgages has exceeded that of economic output since 2009, and last year price gains of homes and apartments outstripped advances in incomes, according to the central bank. Concerned Switzerland could fall victim to a real estate crisis similar to that of the 1990s, the government last year forced banks to build up a countercyclical buffer of 1 per cent of mortgage-related assets. After that failed to prevent a further deterioration of the mortgage market, it last month doubled the requirement to 2 percent. Even so, it refrained from raising it to the maximum 2.5 per cent. Banks have until June 30, 2014, to comply.
According to the UBS index, 17 regions are considered particularly risky, with the Martigny region in western Switzerland being added this quarter.
Tackling property-market imbalances via interest rates is not an option for authorities at the moment. The benchmark interest rate must stay at zero so as not to jeopardize the cap of 1.20 per euro set on the franc in 2011, SNB Vice President Jean-Pierre Danthine said in a newspaper interview this month. Rules governing whom banks may lend to may also get tightened, the SNB said last month when it announced the increase to the buffer.
Two decades ago, an overheating of the real estate market caused bank failures and pushed the economy into recession. Since 2008, mortgages outstanding to Swiss private households have increased 25 percent and apartment prices have risen 28 percent, data published by the central bank shows.
