Swiss Negative Rates Make Homes Unaffordable, Credit Suisse Says

(Bloomberg) --

Switzerland's negative interest rates make owning a home increasingly unaffordable in a country where a single-family property can cost more than 10 times the average annual salary, according to research by Credit Suisse Group AG.

Amid a declining threshold at which banks start to charge savers negative interest on cash balances, investor are looking to the property market for positive returns and low risk from buy-to-let investments, Switzerland's second-biggest bank said in a property market report on Wednesday.

“Private investors seeking secure investments are following the example of more financially powerful investors by buying up residential properties with a view to renting them out,” it said. “Since multifamily dwellings are barely affordable in today's environment, there is strong demand for condominiums and, in some cases, single-family homes.”

Buy-to-let financing now accounts for 17% of new mortgage business and rising prices in sought-after locations are putting rental yields under pressure.

Also, Switzerland's strict affordability criteria have put home ownership for the average household out of reach. An apartment can cost more than five times the average annual income and more than seven times that for single-family homes. In the most expensive regions that figure can rise to more than 10 times.

“We don't see a bubble but we do see risks and perhaps overvaluation,” said Fredy Hasenmaile, Credit Suisse's head of real estate analysis and one of the authors of the report. He said there were barely any speculative tendencies in the market at present. “Buyers are acting very rationally and the high price levels are a result of low interest rates.”.

The Swiss National Bank, whose policy rate currently stands -0.75%, has repeatedly warned of exuberance in residential property and flagged the risk of a market correction.

To contact the reporter on this story: Jan Dahinten in Zurich at jdahinten@bloomberg.net

To contact the editors responsible for this story: Jan Dahinten at jdahinten@bloomberg.net, Catherine Bosley

©2020 Bloomberg L.P.