Swiss banks slam measures to cool runaway real estate market

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ZURICH — Swiss banks have slammed new measures planned to cool the country’s scorching real estate market, saying the measures are unnecessary and will do nothing to slow rising house prices.

The government said on Wednesday that from October lenders needed to increase their cushion against property loan risk, sounding alarm bells on one of Europe’s most expensive property markets, where the total mortgage lending has ballooned to over $1 trillion.

The plan was one of the first in Europe to cool housing markets which have boomed in recent years due to rock bottom interest rates.

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The Swiss Banking Association (SBA), which represents around 300 banks in Switzerland, including heavyweights UBS and Credit Suisse, opposed requiring banks to hold more capital against home loans.

The change distorted competition because it applied only to banks and not to pension funds and insurers, which are gaining a growing share of the mortgage market, the SBA said.

“At the end of the day, we don’t think it’s necessary or effective,” said SBA board member Oliver Buschan. “People could just go elsewhere for their loans.

“Changing banks’ balance sheets is not going to fix the situation, if it needs to be fixed,” he told Reuters, adding that property prices were rising due to fundamental factors such as lack of space and population growth.

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“We don’t see this as a bubble,” he said.

House prices have risen more than 80% in the past 15 years, according to the Swiss National Bank. The median price of a house in Zurich has risen to 2.6 million Swiss francs ($2.79 million), as the explosion in loans has raised fears of a damaging collapse if interest rates rise.

Switzerland experienced its last real estate bubble and bust in the 1990s, when property prices plunged after rising sharply in the late 1980s.

The SBA quoted the average loan-to-value ratio in Switzerland at 60%.

“The whole market would have to crash 40% for there to be a collateralization issue, and that’s just not going to happen, given the fundamentals,” Buschan said.

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Credit Suisse’s head of real estate economics was also skeptical, saying the increase in capital requirements would only marginally increase costs for lenders and a barely noticeable amount for borrowers.

“It can neither eliminate nor significantly influence the causes of the sharp price increases in the Swiss real estate market,” said Fredy Hasenmaile.

“As a result, I do not expect a weakening of the upward price trend in the Swiss real estate market as a result of the measure.”

Elsewhere in Europe, the German financial regulator wants to see banks hold a bigger crisis cushion to absorb losses, while France tightened mortgage standards last year to reduce lending.

Sweden’s financial watchdog ordered banks to hold more capital from September to protect against future crises, citing rising house prices and household debt. ($1 = 0.9304 Swiss francs) (Reporting by John Revill editing by Frances Kerry)

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