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Wednesday, 08 February 2012 07:29

The Swiss Real Estate Bubble?!

I recieved this email from a reader and thought I would toss it out to the community for comment...

Hi Reggie,

I'm curious to know your thoughts on the Swiss Real Estate Market and current bubble occurring (as the disparity between income growth and rental growth continues to widen for commercial and residential property).

Residential is protected by the Lex-Koller law, meaning that (with the exception of a few mountian resort towns) foreigner cannot buy and own residential real estate. However, commercial RE is open to foreign investment.

This growth in income vs. rent disparity has continued for quite some time and I'm curious to hear your thoughts on why you think Switzerland's economic environment has been able to sustain a bubble like this for so  long compared to other bubbles in other countries.

It has come to my attention that rents in the prime areas of Geneva and Zurich are just now beginning to trend downward (despite what Wuest & Partner, Colliers and the lot of them publish in their reports).

However there has also been an interesting "flight to quality", as I like to call it, by various REITs caused by EU fears. Yields (on NOI) in downtown Geneva and Zurich are between 3% and 4% at the moment.

Foreign govt pressure on banking secrecy is causing banks to leave, but trading companies are flowing into Switzerland to take advantage of 0% capital gains on shares.

I find it interesting to look at Switzerland because when economic indicators signal the nearing of a CRE bubble burst, other economic factors suggest such a burst might be unlikely to happen.

I'd love to read your thoughts on this apparent economic anomaly of a country.

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