Real estate investors in Switzerland should be wary of an increase to the country’s interest rates, as its knock-on effect could lead to property prices falling in a fashion not seen in 20 years, Towers Watson has said. The warning comes after Swiss interest rates briefly fell into negative territory in August, with the LIBOR rate now hovering around 0%.
Edouard Stucki, senior investment consultant at Towers Watson in Zurich, said that while Swiss Anlagestiftungen would not be as badly affected, as they trade at net asset value (NAV), other investment vehicles would suffer under any increase. He explained that the vehicles trading at a premium or discount over NAV would be at risk of rising interest rates.
"Why it hasn’t happened is because they would tend to react a bit delayed to valuations, as these happen in three-year cycles," he said, explaining that this meant any actual decreases in value took several years to be reflected in returns.
