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House market – property buyers have to reckon with less return News

Friday, September 1st, 2017 | Economy

Investments in Swiss real estate are popular. This is reflected in the rise in house prices in recent years, but also in the performance of listed real estate companies. This year alone, the total return on the SXI Real Estate All Shares index was 8 percent. Between August 2007 and today, the index has virtually doubled.
If, on the other hand, you are investing directly in real estate, ie buying a property and leasing it, you have to make do with a significantly lower rate of return. At the end of the second quarter of 2017, the average gross initial yield on yields in Switzerland declined to 4.2 percent, as shown by data from the real estate consultancy Wüest Partner. In 2016, the yield was still 4.6 percent and in 2012 it stood at over 5 percent:

A study by UBS recently concluded that these "buy-to-let" investments could lead to gross dividends of "only" 3.4 percent. After deduction of maintenance costs and depreciation, a net profit margin of around 2.6 per cent remained.
The authors of the UBS study also warned that a net rental yield of 2.6 percent does not yet include any rent loss. If you buy a new apartment for rent, you are confronted with an increased vacancy risk. One tenth of the new rented apartment was vacant.
In order to calculate the gross initial yield, the annual net rent is divided by the purchase price of the property. The differences between the figures of Wüest Partner and UBS are therefore due to the fact that the market for the trading of bond yields is only conditionally transparent.
Yields remain low
Wüest Partner assumes that in the case of direct real estate investments, a similarly low level of returns is expected in the second half of the year. However, the consulting company is less likely to decline again. The reasons: higher leeches in rented apartments and brisk building activity put rents under pressure. This, in turn, can reduce the willingness to pay high prices for returns.
Do indirect property investments in the financial markets remain attractive in the future? For real estate companies or funds the higher flexibility speaks. They can be bought or sold at any time. According to Robert Weinert of Wüest Partner, direct real estate investments are, however, less volatile in the short term than indirect ones. In addition, the investor's profile depends on the individual strategy and the investment volume. "In the case of direct real estate investments, for example, a sensible diversification is difficult, depending on the amount invested," says Weinert, who is responsible for real estate monitoring at Wüest.
Looking at the Swiss real estate market in its entirety over the last few years, it becomes clear that indirect and direct investments are almost the same. Between 2007 and 2016, real estate shares were 85%, while direct investments in real estate were 86% in the same period. For comparison, the Swiss Performance Index (SPI) rose by almost 30 percent.


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