From SwissInfo

Finma warns of real estate bubble

swissinfo.ch and agencies
Jul 4, 2010 - 15:18


The financial watchdog has cautioned against a real estate bubble that could lead to a crisis on the Swiss property market.

Patrick Raaflaub, head of the financial market supervisory authority (Finma), says low interest rates, strong demand for housing in some regions of the country and a conviction among potential buyers that real estate investments are not a risk were the perfect ingredients for a bubble.

It leads to a rapid increase in valuations of real property until they reach unsustainable levels.

In an interview with the NZZ am Sonntag newspaper Raaflaub said his agency would be vigilant.

However, he added it was difficult to talk banks into a more restrictive mortgage policy.

“But once the interest rates are rising and prices continue to drop the real estate bubble will burst,” Raaflaub said.

I don't see it. There are a few areas of the country where prices have jacked up unreasonably, in particular the North shores of Lake Zurich and Lake Geneva. In those areas, we have recently seen an influx of super-rich Russians and Chinese outbidding the Swiss for property, but these are rather insulated cases.

By and large, the real estate prices have not risen as much here in Switzerland as in many other countries. Over the last 20 years, the real estate prices have gone up by 30-50%, not by 800% as in Spain and some other places that have seen a true real estate bubble.

Also, a bubble depends on lending conditions, and the Swiss banks have been much more frugal in lending money to potential buyers. An average one-family home may be mortgaged at 80% (60% of primary and 20% of secondary mortgage), but more exclusive and costly property buyers will not receive mortgages beyond 50-60%.

It is correct that also here in Switzerland, a lot of property owners go for variable-rate mortgages, and if interests rise, some of them may be in trouble, but I don't see much of a risk of many properties ever carrying mortgages that are higher than their true value.