Switzerland at Risk of a Real Estate Bubble

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Switzerland at Risk of a Real Estate Bubble

July 26, 2016

 Are you planning to sell your apartment in Switzerland online because of the rumours that the country is in the middle of a gigantic real estate bubble? Indeed, there is a lot of concern in Switzerland as property prices in the country have reached their highest level since the late 1980s.

 The biggest bank in Switzerland, UBS said recently that the Swiss Real Estate Bubble Index was at 1.41 points towards the end of 2015, the highest it has been in 15 years. Greater Zurich and Lake Geneva are the most expensive areas in Switzerland and have the highest risk potential in the country, with respect to a potential real estate bubble.

Zug, Lucerne, Basel and Lausanne are among the other expensive cities in the country where property prices have shot up to unmanageable levels.  Lugano in particular has seen a massive growth in property process.

As UBS explains in its report, “The highest price rises for homes shifted last year from the centre of the country to the periphery. Eastern Switzerland with a four to six percent increase swung to the top, and the regions of Thurtal, Upper Thurgau and Linth appeared for the first time on the map.”

What’s interesting in that regions such as Davos and Upper Engadine have actually witnessed a fall in property prices recently because of over development and the strength of the Swiss franc. Davos is the most popular city in Switzerland with foreign tourists and the demand for properties here is very high.

As the UBA report explains there are many factors involved that are affecting the property market in Switzerland. For one, mortgages have grown faster than income in Switzerland, and that too at an unprecedented rate.

Rents have stagnated even as home prices have surged, up by 3.3 percent over the last 12 months. Home prices have risen every year in Switzerland since 2000.  So the housing market in the country is very close to the real estate bubble conditions of 1980s. The 1980s real estate bubble didn’t end well – in fact it ended in a prolonged recession in the housing market that lasted a decade.

 The question is, especially if you want to sell your property in Switzerland fast, are we going to see something similar   over the next few years. The nation shows every sign of being in a real estate bubble – consider the fact that 25 percent of the Swiss population owns two or more homes.

The Centre for Research on Architecture, Society and the Built Environment (CASE) reported that 28 percent of the Swiss population or 2 million people have more than one residence. This just goes to show that there is a lot of speculative investment in Swiss properties.

Further, the study found that 9 percent of the Swiss population had four homes or more. This is, of course, an indication of the level of prosperity in Switzerland.

 There’s nothing wrong with that. However, when a significant section of the population starts buying more homes than they really need, then the consequences won’t be pretty, as the 2007 subprime mortgage crisis in the U.S. that led to a full blown recession that lasted for 6 years proves so well.