UBS real estate bubble index remains high

Compared with the previous quarter's value, the UBS Swiss Real Estate Bubble Index remained unchanged. The imbalances in the owner-occupied housing market have not increased further for several quarters, UBS writes.

The index was supported by the purchase-rent price indicator, which reached another high in the second quarter of 2017. Investment demand for residential real estate also remained high. By contrast, the relatively moderate growth in outstanding household mortgages against the backdrop of the slightly brightening economy had a dampening effect. Quarter-on-quarter, a slight decline in inflation-adjusted home prices was also observed for the second time in succession.

Residential rents on offer below 2014 level

Since 2014, purchase prices for residential property have risen uninterruptedly faster than market rents. This gap between the owner-occupied and rental housing markets continued to grow in the past quarter. However, this was due less to a boom in the owner-occupied housing market than to a continuous decline in rents, UBS analyzes. Market rents for new and re-let properties are now below the level seen at the beginning of 2014.

However, building permits do not indicate a decline in residential construction activity, the report continues. For the year as a whole, UBS Chief Investment Office Wealth Management continues to expect new construction activity of around 50,000 residential units, which is once again too high compared with demand. Rents are therefore likely to fall further, according to the forecast.

Market risks on Lake Geneva reduced - Zurich Oberland again a risk region

Following a price correction of around 10 percent over the past three years, the economic regions of Geneva and Nyon are no longer among the risk regions. The ten-year average price increase rates are now also below the median value for all Swiss economic regions. The Zurich Oberland, on the other hand, is new and once again among the risk regions. This confirms the trend toward a concentration of risks in the home ownership market in the Zurich and central Switzerland regions.