CHF: Some segments of the Swiss real estate market could be overheating - ING

According to Julien Manceaux, Senior Economist at ING, having negative interest rates lengthened until 2020 could bring some financial stability risks, notably through excessive asset valuation in Swiss markets.

Key Quotes

“In December, the SNB also expressed itself on financial stability. From that perspective, Vice-President Zurbrügg insisted on the imbalances on the Swiss mortgage and real estate markets. The SNB noted, in particular, a marked rise in residential investment property prices where it currently sees that “risks have accumulated”. In particular, increasing vacancy rates could be the sign of oversupply in some segments.”

“In parallel, the SNB noted that mortgages with high loan-to-income ratio have reached a historical high, showing that “incentives for domestically focused banks to increase risk-taking remains substantial”. Since last year, the SNB has been repeating a clear message: if the race to the bottom (in mortgage interest rates) continues, the risk of an overheating housing market could reappear, and with it higher financial stability risks. So far, this has not triggered an increase in the compulsory capital buffer for domestic banks but the SNB suggested in December that this could still happen.”