Last week UBS released its real estate bubble index for the last quarter of 2015. According to the bank, the risk moved from 1.34 in Q3 2015, to finish the year at 1.41. Anything over 1.0 is considered risky and anything beyond 2.0 is bubble territory. Before property prices crashed in the 1990s, the index rose nearly as high as 2.5. The regions currently most at risk include, Zürich, Zug, Luzern, Basel-Stadt, Lausanne, Morges, Nyon, Vevey, Geneva and Lugano.
Source: UBS
Swiss property prices, even in the hot spots, were not as frothy as some other places. A UBS report late last year put London and Hong Kong in bubble territory. Sydney, Vancouver, San Francisco and Amsterdam were all more overvalued than Geneva and Zurich.
Source: UBS
The main driver of the recent increase in risk in Switzerland was an increase in outstanding mortgage loans, which helped to drive Swiss real estate prices up by 0.5% in the last quarter of 2015 and by 2% for the year. Household mortgage debt was 3.2% higher than at the same time in 2014. Although debt growth slowed in the fourth quarter of 2015 mortgage lending had reached its highest level relative to household income in the last five years by the end of 2015.
Geneva – © Julia Burlachenko | Dreamstime.com
Swiss housing became less affordable last year. House prices rose 2% while incomes fell by 1.5% over the year. A medium priced house now costs around 6.2 times an average annual household income, said the report. The long-term average is 5.3.
Risk has increased substantially over the last three years. At the end of 2012 the UBS Swiss Real Estate Bubble Index was 0.79. By the end of 2015 it was 1.41, a rise of 78%.
There was some good news for renters. Rents were stagnant rising only 0.1% in the final quarter of 2015.
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