The boom in the Swiss property market continues, albeit at a slower pace. According to a new study by the Lucerne University of Applied Sciences and Arts (HSLU), Swiss residential properties remain the most sought-after asset class among institutional investors.

Almost half of the pension funds surveyed (47 percent) plan to expand their holdings of direct domestic real estate investments, while only 3 percent intend to reduce them. Commercial properties and foreign assets, on the other hand, are expected to remain largely stable.

Stability Is Key

The study's authors cite the stability of the domestic market and lower currency risks as the main reason. Co-author John Davidson explains: «The fact that prices have been rising for more than 25 years confirms the confidence in the Swiss market, while investments abroad appear less attractive due to currency hedging costs and higher volatility.»

Interest in mortgage investments has also revived, with pension funds in particular increasing their exposure in this segment, taking advantage of the yield gap between mortgages and bonds.

End of the Boom Is Expected

Despite this sustained appetite, most respondents expect the real estate boom to end. The greatest risks cited are increasing regulation (92 percent), objections to construction projects (90 percent) and stronger tenant protection (88 percent). Co-author Daniel Steffen adds: «The focus on regulation as a key risk is likely reinforced by media coverage of new tenant protection measures in Geneva and Basel.»

The study surveyed 228 institutional investors managing a total of 568 billion Swiss francs – around half the assets of all Swiss pension funds.