The UBS Swiss Real Estate Bubble Index stood at 0.29 points in the third quarter, up from 0.20 points in the previous quarter. However, the index level was revised downward due to new data showing lower construction activity in the previous year, according to a study published on Tuesday.

UBS classifies the bubble risk as moderate, noting that price growth has continued to accelerate. One contributing factor is that home prices have risen faster than household incomes and rents. Mortgage lending has also increased significantly compared with previous quarters.

(Graphic: UBS)

In real terms, the year-on-year rise in home prices amounted to around 3.5 percent, the highest increase in more than three years. In contrast, rental price growth has slowed considerably, with real asking rents now 1.1 percent higher than a year ago, UBS reported.

UBS analysts expect a slight slowdown in home price growth over the coming quarters. Prices are projected to rise by about 3 percent in nominal terms by 2026, outpacing both income and rent growth.

Regional Disparities

Meanwhile, the cost of owning property compared to renting has declined, and residential construction activity continues to slow, which makes a price correction unlikely in the near term, according to UBS real estate experts.

There are, however, significant regional differences. The most pronounced imbalances are found in tourist regions of Graubünden, driven by a second-home boom amid tight supply. Imbalances have also increased around Lake Geneva, while in German-speaking Switzerland, new hotspots include Einsiedeln, the city of Zurich, and Nidwalden.

(Graphic: UBS)

UBS calculates the index using variables such as the price-to-rent and price-to-income ratios, the cost comparison between buying and renting, and developments in mortgage rates and volumes. The systemic risk of oversupply is estimated based on building permit data.