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Swiss housing bubble risk highest since 1991, says UBS

[ZURICH] The Swiss property market, moving ahead while the economy shrinks, is in more danger of developing a bubble than at any time since 1991, UBS said in a quarterly study on Tuesday.

Negative interest rates have created excess demand for property as an investment, the Zurich-based bank said, which brings the housing market back into focus for the Swiss National Bank (SNB).

Loan applications for second homes hit their highest on record in the second quarter, UBS said.

"While lower rents push down returns on real estate investments, the overheating market for investment properties has spilled over into the home market given the scarcity of investment and the negative interest rate environment," UBS said in a statement on its Swiss Real Estate Bubble Index.

The index rose to 1.37 points in the second quarter, up from 1.31 in the first three months of 2015 and its highest level since the first quarter of 1991.

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Readings between zero and 1.00 are categorized as a boom, while anything higher is seen as a risk. Readings above 2.00 are categorized as a bubble.

Mortgage volume of private households rose 3.5 per cent on the year, and house prices climbed almost 2 per cent, UBS said.

While the gains are moderate historically, they are high in relation to shrinking Swiss economic output and a sharp drop in consumer prices.

At its last monetary policy meeting in June, the SNB said imbalances in the housing market had not yet begun to even out.

The central bank, government and mortgage lenders have come up with a variety of measures to combat rising property prices, which have also been spurred by immigration and Switzerland's appeal as a safe haven for financial investors.

The government provides no official data on the housing market.


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