Chance of a real estate crash on the rise in Switzerland, UBS finds

With interest rates on mortgages falling and the number of apartments to buy on the rise, a new report by UBS has revealed that the risk of a housing bubble in Switzerland has increased. The Swiss bank found that in some cantons, there is a very real risk of a real estate crash.

Rising risk of a housing bubble in Switzerland

According to its latest Swiss Real Estate Bubble Index, UBS noted that the risk of a housing bubble has started to rise. Several “fundamental factors” related to housing in Switzerland suggest that the risk has been increasing since the beginning of the year.

In this case, a housing bubble refers to house prices increasing above what they are worth, a phenomenon typically driven by speculation, high demand and limited supply. This becomes an issue when people stop buying houses as they are too expensive, or when homebuyers purchase properties that they cannot afford. When these buyers default, a real estate crash takes shape as both demand and house prices plummet, leaving mortgage holders paying for more than what their property is worth.

Swiss housing market remains remarkably resilient

However, nationally, UBS noted that recent months have seen the Swiss housing market remain remarkably stable in the face of increasing global uncertainty. According to UBS, last year saw the cost of buying a house and rental costs rise by 3,2 percent. 

Thanks to the low cost of owning a home in comparison to renting, average demand for mortgages, low interest rates on said mortgages and shortages caused by a lack of construction, house prices have continued to rise. For 2025, they expect rents to remain stable, largely thanks to the cut to the reference interest rate in March, while homes will become 3 to 4 percent more expensive to buy.

Warning signs emerging on the buyers' market

However, several factors are casting doubt on whether the price rises are sustainable. UBS noted that slower economic growth in Switzerland and overseas could lead to increasing uncertainty and fewer homebuyers.

Affordability also remains a concern. An April study from UBS found that a couple earning the average salary in Switzerland - 150.000 francs a year total - can only afford 31 percent of homes on the market, and none in major cities like Zurich.

Moderate risk of a housing crash in Switzerland, high chance in Graubünden

Therefore, on balance, UBS has raised the chance of a real estate crash in Switzerland, though the risk remains “moderate”. However, while a nationwide crash remains unlikely, there is a significantly higher risk of a housing bubble in Switzerland’s tourist areas, especially in ski resorts in the mountains.

UBS noted that Graubünden faces the greatest risk of falling property prices, as the gap between average household income and home prices is one of the widest in the country and has widened further in recent years. The bank explained that the main reason for the widening gap is that a very limited number of new properties are being snapped up by second homeowners, sending prices skyrocketing.