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Possible overheating in real estate: tighten mortgage requirements, gov’t told
Home sweet home in Switzerland: signs the market is overheating
BERN, SWITZERLAND – The OECD (Organization for Economic Cooperation and Development) 2012 report on Switzerland, issued this week, cautions Bern against allowing consumer debt to build and warns that the real estate market may be overheating.,
The report’s overall assessment is that while Switzerland is weathering the eurozone crisis reasonably well, it remains at risk from the ongoing sovereign debt problems and economic stagnation in the region. The high Swiss franc will continue to pose problems for the export industry, the OECD notes.
“Exceptionally low” short- and medium-term interest rates are contributing to a mortgage boom and high real estate prices, the report states. Some areas are now showing signs of overheating, the report concludes. “Taking into account the high gross debt of households, the risk could increase, for small internal market banks, if there is a sudden rise interest rates.” Household debt in Switzerland is one of the highest in the OECD, it notes, although household wealth is “not negligible” taking into account assets held by the pension system.
Other key points from the report:
- The country’s two big banks, Credit Suisse and UBS, should be required to have higher leverage ratios than the 5 percent proposed by parliament, common equity should play a greater role and the reforms passed by parliament in 2011 should be implemented more quickly than the scheduled completion date of 2019. Parliament’s capital ratio of 19 percent has been praised as going beyond Basel III requirements for banks around the world, but the size of the two big banks in relation to the Swiss economy creates a risk that remains too high;
- Fiscal reforms would encourage economic growth; these should include a higher TVA (value-added tax) with broader coverage to consolidate growth and reduce distortion in the system. At the same time, the tax rate for individuals should be lowered, the OECD recommends, to encourage growth. Switzerland’s tax rates are modest on an international scale, but this is offset by the burden of mandatory health insurance and pensions.
- A number of measures are recommended to reduce CO2 in line with agreed limits by 2020; the OECD recommends an emissions tax on vehicles, saying this is a relatively inexpensive way for the country to reduce CO2 emissions, and it suggests peak traffic and congested area use taxes.
UBS real estate risk map Q3 2011 (click on image to view larger)
LAUSANNE, SWITZERLAND – The Swiss Real Estate Bubble Index, published quarterly by bank UBS, shows the housing market continuing to boom but not at risk of a housing price bubble, nationwide.
Morges is one of two new regions that have been added to the “at risk” of reaching the bubble stage, however, along with the Oberengadin region and new regions have been added for monitoring for risk.
The third quarter 2011 risk level is 0.58 on the scale that tracks slump, balance, boom, risk and bubble. “A value of 0.58 corresponds to the boom level and implies no elevated risk of a Switzerland-wide correction,” UBS notes.
“Only when the index surpasses a value of 1 is the market considered risky. The index reached its peak in the early 1990s at a level of 2.5 at the height of the last Swiss real estate bubble.”
The quarterly report shows some cooling of house prices but no change in trend foreseen for home mortgage debt.
Lake Geneva region remains expensive, Morges shifts to “at risk”
Swiss construction and renovation is booming, thanks to low interest rates
BERN, SWITZERLAND – The current very low interest rates in Switzerland run the risk of overheating the mortgage market and Wednesday the Swiss Federal Council underscored that it considers urgent the need for measures to reinforce macroprudential management.
In particular, the government wants to ensure that the central bank and supervisory authorities have rapid access to lending data from the banks to avoid a Fannie Mae style meltdown from risky loans, with the broader impact that would have on the economy.
The Swiss National Bank and Finma, the federal supervisory body for financial institutions, are already working with the Federal Finance Department, and the working group will very soon begin to involve Swiss banks, the cabinet said in a statement 7 September.
The working group’s work is an extension of steps taken 17 August, when the government announced that banks will be required to get tougher about mortgages starting in January 2012.
Borrowers will need higher down payments to buy homes starting next year.
The group is reviewing the way in which the central bank can have rapid access to bank data when it’s not available to Finma. Current legislation may be too restrictive, the cabinet argues, and if this is found to be the case it will draw up a new legal framework by the end of the year and submit it to parliament.
“Macroprudential” is a relatively recent buzz word in the financial word, says the Bank for International Settlements, reflecting greater concern since 2008 over the impact of high risk lending on the economy as a whole. One of its earliest uses was in 1979, in a background paper prepared for a BIS working committee by the Bank of England:
“Prudential measures are primarily concerned with sound banking practice and the protection of depositors at the level of the individual bank. Much work has been done in this area – which could be described as the ‘micro-prudential’ aspect of banking supervision. […] However, this micro-prudential aspect may need to be matched by prudential considerations with a wider perspective. This ‘macro-prudential’ approach considers problems that bear upon the market as a whole as distinct from an individual bank, and which may not be obvious at the micro-prudential level.”
Background feature: “Swiss mortgage rates remain low, but market increasingly scrutinized”, 17 June 2011, GenevaLunch
New reports shed some light on Geneva housing prices
ZURICH, SWITZERLAND – The Swiss National Bank 16 June joined the chorus of cautious voices warning of real estate markets overheating in some urban areas in Switzerland and the risks a sudden sharp economic downturn, not to be excluded despite current economic growth, could pose for banks as well as property owners. The central bank has begun a quarterly survey of Swiss banks’ risk levels.
“In response to signs of imbalances developing in the Swiss mortgage market and to the high uncertainty over the banks’ true risk exposure, the SNB has intensified its monitoring of the mortgage market. For this purpose, at the beginning of 2011, it launched a comprehensive quarterly survey of banks. The survey results will be a key tool for analyzing the vulnerability of the Swiss banking sector, and assessing
the need for further policy measures.”
The carefully crafted words of the SNB’s Financial Stability Report 2011, published 16 June, don’t paint a dramatic picture, but the report does raise flags, even as luxury property reports aimed at buyers outside Switzerland, such as one issued by the New York Times 16 June, paint a rosy picture that overlooks the larger
Cheaper housing: Geneva’s Swiss are buying in Annemasse
Neighbouring France is benefitting to some extent from the high franc and housing shortage situation. Le Temps reports today that 40 percent of the new relatively low-cost housing complexes being built in Annemasse, on the border, belong to Swiss people.
The managing director of a large retail store in the Nyon area told GenevaLunch Thursday that “retailers here are suffering. It’s not catastrophic but it’s not good. We read about how well the economy is doing, but we don’t see it. People are shopping over in France, understandably, with the low euro.”
Interest rates held at low 0.25%
Geneva's old town: a nice place to live, for those who can afford it
The good news for homeowners is the SNB’s decision on interest rates, which will be kept at 0.25 percent for three months, continuing the expansionist monetary policy of the past two-plus years. The central bank notes, however, that the current situation cannot continue for another three years, with low interest rates to fuel the money supply, coupled with a high Swiss franc, in the context of a very mixed economic growth picture in Europe. “Strong growth in the emerging markets and positive developments in Germany and Switzerland contrasted with economic weakness in several other European countries”, in 2010, the report warns.
Swiss market stable except for Geneva, Lausanne region
Swiss residential real estate prices show marked differences, with Wuerst and Partner‘s October 2010 quarterly report on the Swiss market showing 60 communes at risk for real estate bubbles, while the market overall remained “stable”.
The latest report from the company, issued in May 2011, says stability has continued, with one significant exception: “residential rents are expected to continue to remain generally stable. The one exception is the Lake Geneva region: This region is currently experiencing the strongest population growth throughout Switzerland, whilst at the same time residential construction activity has remained moderate in comparison with the rest of the country. Consequently, rents in this region are expected to trend further upwards in the foreseeable future.”
The housing supply rate stabilized in the first quarter of 2011, Wuerst figures show, but the asking price for all residential property in Lausanne and Geneva continued to climb, the only area in Switzerland where this was the case.
Sales prices in Lake Geneva area rose 10% and more: CHF2.26m on average in Geneva
Geneva, Switzerland (GenevaLunch) - Canton Geneva’s government president, Mark Muller, says the office that oversees property belonging to the canton is undertaking a vigorous housecleaning, and methodical review of several problem areas. He spoke at a press conference Thursday 9 February, following harsh political and media criticism after an audit brought to light several major problems.
These included buddy prices for some people renting cantonal property and mismanagement of some properties left to the state. The audit called for the government to clean up the situation by the end of 2012 but Muller says the governing council approved plans at a Wednesday night meeting to move more quickly.
Muller insists he will not step down, despite calls for him to do so.
Building permit applications are down in Zurich and Geneva, pushing housing prices yet higher
Houses, apartments for sale in Lausanne and Geneva: Q3 median prices published
Geneva, Switzerland (GenevaLunch) – Housing prices in some parts of the Lake Geneva area are described as “vertiginous” in the latest edition of Immo-Monitoring, published twice a year by Wuest & Partner. Switzerland’s housing market overall is stable, but prices have risen so rapidly in some 60 communes, according to the latest report, that there is a risk of a real estate bubble bursting: house and apartment prices have doubled in the past 10 years to CHF10,000/m2 in many cases.
Rent prices are generally stable in the region, but will continue to rise.
The Irish government Tuesday 30 March announced a series of measures to prop up its ailing banks, which have not yet come out of the global financial crisis. AIB shares were down 20 percent and Bank of Ireland shares fell by 10 percent. The popularly dubbed government “Bad bank” took over €81 billion in bad housing loans Tuesday, about one-fifth of Ireland’s bank loans, while political debates centred on the growing nationalization of the banks.
Links to other sites: Financial Times, Irish Times
No rent increase for now
Bern, Switzerland (GenevaLunch) - Base rates for mortgages in Switzerland will remain at 3% for the time being. The announcement came from the Federal Government which decided that the rate will remain the same until June 2010 when a new evaluation of base rates for mortgages is expected.
This means that renters may not be entitled to rent reductions but there won’t be rent increases either. Owners may only increase rent values if there are improvements made to the property.
Credit is easing and property prices are starting to move up in the UK, two of the factors that have led PricewaterhouseCoopers and the Urban Land Institute report to name London as investors’ most popular choice for new real estate developmen in Europe. The city moved up several slots on the international scale, a sign of renewed investor faith in both the market overall and the UK’s improved situation.
Links to other sites: PWC and Urban Land report, Reuters
Swiss households' real estate assets, now more transparent
Zurich, Switzerland (GenevaLunch) – The net worth of Swiss households fell in 2008 from an average of CHF334,000 per capita to CHF312,000. About CHF200,000 of this is real estate and claims against insurance and pension plans. The drop in assets, the first since 2002, was due to sharp falls in stock market values. It would have been worse but for higher real estate values, which provided something of a safety net. Real estate assets, CHF1,315 billion in total, accounted for 43 percent of all household assets at the end of 2008, up from 39 percent the previous year.
Real estate prices climbed in 2008
The total value of households’ real estate rose by CHF73 billion in 2008.
The figures were released by the Swiss National Bank (SNB) Friday 20 November, as part of the national financial accounts. This is the first year that assets include households’ real estate. The report notes that:
“financial assets held by households declined by CHF199 billion (10.4%) to CHF1,718 billion, while assets held in real estate increased by CHF73 billion (5.9%) to CHF1,315 billion. Liabilities rose by CHF15 billion (2.4%) to CHF629 billion. As a result of these developments, households’ net worth fell by CHF 141 billion (5.5%) to CHF2,403 billion.”
Newcomers to the Swiss housing market: left out in the cold
Bern, Switzerland (GenevaLunch) - The housing market has clearly felt the impact of Switzerland’s agreement with the European Union, allowing the free movement of labour, a new study by the Swiss Federal Housing Office (OFL) shows. In Geneva and Lausanne it has had a significant impact on real estate and rental markets, mainly for higher end housing, but Zurich has been hardest hit, with low- and high-end housing prices rising as the market shrivels. The 1.8 percent growth in 2008 of the Swiss population is largely due to immigration, the OFL notes.
The study’s cutoff date for data was the end of December 2008, and the government cautions that it does not take into account the likely impact on the housing market of the economic downturn during 2009.
Schumacher's new home in Gland (©E Wallace 2009)
The race driver's old home, now for rent (image: GetImage/Immostreet.ch)
Vufflens-le-Chateau, Vaud, Switzerland (GenevaLunch) - Formula 1 superstar Michael Schumacher has put his house in the Vaud hills above Morges up for rent for a cool CHF29,000, which even in the Swiss housing market is on the high end. And that doesn’t include les charges, such as electricity, for which the amount is not given.
Here’s what you can rent for this price in Vaud:
A three-part special on housing and the international population in the Lake Geneva region: part 2
- Nominal GDP in the Lake Geneva region, Wuest & Partner index for aptmts, houses: 1998=100
Rents, Lake Geneva region increases compared to Switzerland, 2007
(Also see part 1:Geneva, Vaud apartment hunters struggle to find a place to call home)
Ed. note: click on images to enlarge
True or false
Rents have climbed continually in the Lake Geneva region
Mostly true, with rent increases outstripping those in the rest of Switzerland since 2002, when the rental market momentarily slipped.
True or false
The sale price of homes has climbed continually in the Lake Geneva region in the past 20 years
Overall, yes, up 179 percent from 1977-2008, but up 30 percent in 30 years in real terms: with cost of living increases taken into account. The increase has not been steady, however, with a big dip in the early 1990s, Swiss-wide, when easier mortgages led to a sudden bubble in prices, which then burst. Stricter rules were put in place: a home-owner’s debt cannot exceed 80 percent of the value of the property.
A three-part special on housing and the international population in the Lake Geneva region: part 1
(Also see part 2: Myth and reality: how housing in the Lake Geneva region adds up)
Geneva, Lausanne, Switzerland (GenevaLunch) - Switzerland’s population grew by 1.6 percent in 2007, the highest rate since 1963, thanks to immigration fueled by a healthy economy and the country progressively opening up to the Schengen Area free movement of labour, starting in 2002. One result was to put more pressure on the demand for housing, especially in the Lake Geneva region where demand has long been greater than supply.
A new peak in housing demand in 2008 in canton Geneva coincided with new construction falling off, leaving Geneva with an apartment vacancy rate of 0.25 percent on 1 June 2008, the date when national figures are compiled.
The Financial Times today carries an interesting interactive chart of changing house prices in Europe over the past 40 years. Switzerland looks boring, hardly changing colour on the map view that shows housing inflation over the years: housing prices in this country have been remarkably stable compared to most of Europe.
