Real estate bubble risk is shrinking: Why rising rents give the all-clear

Real estate bubble risk is shrinking: Why rising rents give the all-clear

How www.blick.ch reported, the risk of a real estate bubble on the Swiss housing market has reduced again in the third quarter of 2023. However, this development was not driven by falling prices, but primarily by rising rents. The UBS Swiss Real Estate Bubble Index fell to 1.41 points (from 1.43), but remains relatively overvalued compared to historical developments. The price-to-rent ratio fell as asking rents increased by 2.8 percent, while residential property prices increased by 0.7 percent.

The bank points out that the index has risen significantly since mid-2020 and currently suggests a clear overvaluation of the housing market. The market is sometimes very overheated, particularly in areas such as Lake Zurich, parts of Graubünden, the St. Gallen Rhine Valley and the Lausanne region.

The UBS Swiss Real Estate Bubble Index, which is made up of six smaller indices, plays an important role, including the price-rent ratio, consumer prices, household income, mortgage volume in relation to household income, construction activity in relation to gross domestic product and the demand for loan applications for investment properties.

This development is an indicator that the market remains fragile and that rising rents do not necessarily lead to an alleviation of the situation. Further monitoring and action is needed to prevent the housing bubble.