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Swiss Home Prices Surge as Low Rates Spark Risk of Bubble

Updated on
Swiss Home Prices Surge
Residential and commercial properties are seen beyond the Limmat river in Zurich, Switzerland. A rise in real-estate prices is among the greatest threats to Switzerland’s economy, Swiss National Bank Chairman Philipp Hildebrand said in June. Photographer: Gianluca Colla/Bloomberg

Oct. 10 (Bloomberg) -- Switzerland’s push to tame its soaring currency may worsen a jump in home prices as record-low interest rates lure buyers into a market already surging from increasing immigration.

A rise in real-estate prices is among the greatest threats to Switzerland’s economy, Swiss National Bank Chairman Philipp Hildebrand said in June. He made the remarks less than two months before the bank lowered rates to zero, after warning more than a year ago about the possibility of a bubble.

“As interest rates have fallen, many people who could not afford it before can buy a house,” Alexandre Ziegler, an assistant professor of finance at the University of Zurich, said. “This has fueled demand and house prices, and could eventually result in a real-estate bubble.”

In August, the SNB cut interest rates from an already record-matching low of 0.25 percent. The Swiss franc’s record ascent against the euro prompted policy makers to impose a currency ceiling on Sept. 6. A similar cap in the 1970s sparked a decade of high inflation followed by a housing bubble in the 1980s.

The average price for a mid-size Swiss apartment has risen 12.5 percent since the end of 2009, according to a study by Zurich-based research consultant Fahrlaender Partner AG. In the cantons of Zurich and Geneva, prices jumped 13.7 percent and 14.5 percent, respectively.

Too Expensive

After looking to buy in Zurich for more than two years, Markus Boesch and his wife Conny decided it was too expensive and risky. They opted to rent a four-bedroom apartment at 3,000 francs ($3,275) a month. The median price of a mid-sized family home in the city was about 1.9 million francs and for a medium-sized apartment it was 1.2 million francs, according to property consultant Wuest & Partner AG.

“We debated buying, but that just wasn’t attractive,” said Boesch, 32, who works in art installation and construction and has two children. “The smallest house, if it has a bit of charm, isn’t sold for under 1 million francs, and quite often these are out-of-repair.”

Rising immigration is among factors boosting home prices, according to the Swiss Federal Housing Office. With an economy largely insulated from the euro zone’s worsening sovereign-debt crisis, Switzerland’s appeal as a haven is drawing an influx of professionals and highly skilled workers.

Foreign Buyers

Citizens from 17 European Union countries were given freedom to immigrate to Switzerland in 2007. The country is home to companies including Nestle SA, the world’s largest food maker, and Swiss Reinsurance Co., the world’s second-largest reinsurer. Switzerland’s financial-services industry, which includes more than 300 banks and employed about 212,000 people last year, accounted for 11.2 percent of gross domestic product, according to government figures.

Well-paid workers in industries like banking and health care typically resettle in cities such as Geneva, Zurich and Zug, according to a study by the housing agency published in July.

Demand for owner-occupied properties in Zurich last year outpaced supply while the number of foreign households grew 4.61 percent, the Housing Office study said. Of the about 480,000 households that have bought a property in Zurich, the agency estimates more than a quarter are foreign.

Homebuilding was at a 15-year high at the end of 2010 with 67,000 units under construction, according to the study. This year, about 14,000 housing units had been produced in Zurich alone at the end of the second quarter compared with 12,800 units in the same period last year, Christoph Enzler, who worked on the report, said in a telephone interview.


The only place Swiss native Moritz Aregger said he could afford to build his 1.3 million-franc family home was a small village about 30 kilometers (19 miles) outside of Zurich. Aregger, 34, a technology consultant for Zurich-based Credit Suisse Group AG, said he would have preferred to buy inside the city to avoid a daily commute.

“It was impossible finding something decent for an affordable price,” Aregger said. “Prices are exploding.”

Record low borrowing costs could cause homes to become overvalued, particularly if Switzerland were to slip into a recession and demand collapses, according to Daniel Kalt, chief Swiss economist at Zurich-based UBS AG, Switzerland’s biggest bank.

“We’re halfway toward the bubble,” said Kalt. “Local hotspots are causing concern, including the bays of Lake Geneva, Lake Zurich and Lake Zug and certain tourism destinations.”

Mortgages Rising

Switzerland’s banks saw mortgage volume rise 4.6 percent last year to 760 billion francs. That total was surpassed within seven months this year, with 783 billion francs in volume by the end of July, according to statistics by the Swiss National Bank.

Zuercher Kantonalbank, the biggest of Switzerland’s publicly owned cantonal banks, said it provides five-year mortgages at an interest rate of 1.9 percent and 10-year mortgages at 2.49 percent. The bank’s mortgage volume rose 6.2 percent to 62 billion francs last year, and 2.4 percent to 63.5 billion francs in the first half of this year, according to ZKB.

The franc rose against all of its 16 major peers tracked by Bloomberg today as optimism that Europe’s leaders are forming a plan to recapitalize their banks sapped demand for the dollar as a haven. The Swiss currency appreciated 2 percent to 90.86 centimes per dollar at 11:29 a.m. in London, the biggest one-day gain since Aug. 9.

Janwillem Acket, chief economist for Julius Baer Group Ltd. in Zurich, said there’s a risk that Switzerland could end up in a situation similar to the subprime borrowing crisis in the U.S. that sparked a global recession and prompted central banks around the globe to slash interest rates.

“People who shouldn’t be borrowing are now seriously considering entering the housing market,” Acket said.

To contact the reporter on this story: Carolyn Bandel in Zurich at

To contact the editors responsible for this story: Andrew Blackman at; Frank Connelly at

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