Demand for Swiss property has been steadily rising over the past few years, driven by the low yield environment and lack of safe haven investment options. But does this mean investors should prepare for a bubble on the local property market?
According to UBS, the current index indicator still puts the real estate market in Switzerland near the risk zone, which would be reached if the index indicator crossed the 1.00 mark. Anything above 2.00 is considered a real estate bubble (see graph).
Some investors see this situation as worrying and advocate a move away from Swiss property. One of them is Steen Jakobsen, CIO at Saxo Bank.
In a recent note Jakobsen wrote: “There is enormous distortion in assets relative to price following a monetary experiment like the one we see in Europe. Swiss industry may have the support of the Swiss National Bank (SNB) to defend against the strength of the Swiss franc, but relative prices are still going higher – leading to the inevitable collapse of real estate and the destruction of capital needed.”
He quotes sources saying “the spread between Swiss and Spanish/Italian/French real estate is now at five standard deviations – the last time the spread was this wide was in 1988/89 which consequently led to the last real estate bubble/crisis in Switzerland.”
His conclusion: sell Swiss real estate and “buy anything else.”
But investor demand does not seem to be dampened by this dynamic. On the contrary, rental prices continue climbing.
Rents per square meter have increased by around 3% on average this year compared to last. Regionally, the strongest growth can be seen in Geneva and Zurich, at around 4.5% a year.
As Daniel Schürmann, manager at Zurich-based real estate investment foundation Pensimo puts it “the growing prices are not a problem for investors – if they keep growing, they will keep getting higher returns.”
Gebauer, CEO of Allianz Suisse Immobilien said at the Expo Real trade fair in Munich this month: “This trend is beginning to worry many investors in Switzerland. You have to be very prudent and smart; there is a lot of demand for core types of assets from both inside and outside the country and it has boosted prices quite fast.”
In his opinion, this will lead to a fundamental shift in the Swiss real estate market, toward development and active asset management, to achieve the necessary returns.
He said: “This will bring the dawning of the age of asset management instead of sitting still and watching property and land prices steadily rise.”