SNB Calls for Steps to Cool Risky Investment Property Market

(Bloomberg) -- Switzerland’s central bank is urging new restrictions on the property market, which it says is at risk of a painful price correction.

Swiss National Bank Vice President Fritz Zurbruegg said Thursday that “targeted measures in the area of residential investment property lending should be considered,” and the central bank is examining such steps, reiterating a call from June.

With SNB policy rates below zero, investors hungry for returns have piled into local real estate, pushing up prices. Residential investment has been particular cause for concern, and Zurbruegg now says that an increase in vacancy rates suggests that the pace of recent construction may have led to oversupply.

That’s “exerting downward pressure on rental income and, in turn, on the prices of these properties.”

Though an SNB interest-rate increase is still probably some way off, the central bank noted that such a move would put pressure on prices.

“Initial yields on residential investment property, in other words the ratio of rental returns to transaction prices, are at historically low levels. In the event of an interest-rate rise, initial yields on investment properties will also have to increase upon a change of ownership. This would place additional pressure on prices.”

To curb speculation, officials have already set an additional capital cushion for banks, while there’s also a self-regulation requirement on mortgage affordability. The finance ministry has the lead on additional measures, Zurbruegg said.

Regulator FINMA is also testing local banks to assess their resilience. About 20 are undergoing the health check, with results due next month, according to newspaper Schweiz am Wochenende.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Zoe Schneeweiss

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