Swiss real estate favored by a 10-year rate of 1%
BearBull Global Investments Group (DIFC)
BearBull Global Investments Group is a leading independent Swiss wealth advisory firm based in the DIFC
In this article, our Group Chairman, Alain Freymond, and our Group CEO, Ahmad Saidali, share their insights on the compelling yields, risk premiums, and agios within the Swiss real estate market.
Attractive yields, risk premiums, and agios
After the sharp rise in the ten-year rates of the Confederation in December 2022 and March 2023 to 1.6%, the longer end of the CHF yield curve then declined quite significantly during the summer. The ten-year rates subsequently did not escape the global upward trend from June to October before weakening in recent weeks and falling below 1%. The yield curve is now highly inverted due to the Swiss National Bank's rates at 1.75%, well above long-term rates. These recent developments will have a significant impact on the Swiss real estate market. Base inflation (1.5%) and the Consumer Price Index (CPI) (1.7%) are below the SNB's target (2%) and support the recent trend, while leading indicators suggest a softening of economic activity.
We estimate that the Swiss National Bank (BNS) could already change its policy in H1 2024 and once again ease real estate financing conditions. The recent decline in ten-year rates to 0.95% is expected to transmit to mortgage rates and prompt an adjustment in expectations. Listed real estate has suffered from the more tense interest rate environment and struggled to rebound due to the SNB's policy, despite attractive valuations. However, the situation is on the verge of changing and improving for securitized Swiss real estate.
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Indeed, the current average agio of 5.9% is now significantly below its historical average (17%) and its lowest level since 2008 (10%), presenting a unique opportunity. We also believe that the current yields of funds (2.9%) and companies (3.6%) are attractive in the current economic and stock market climate. The risk premiums of 2% and 2.7%, respectively, are particularly appealing and should lead to a substantial revaluation of securitized Swiss real estate in the near future.