Are Swiss real estate funds with low premiums a good investment or a risky proposition?

The Swiss real estate market has been booming in recent years, with both direct investments and indirect investments through real estate funds becoming increasingly popular among investors. Despite the increase in interest rates, which has put pressure on premiums, Swiss real estate funds remain a viable option for diversification and liquidity.

As of April this year, there are currently 42 real estate funds included in the industry barometer SXI Real Estate Funds Broad (Swiit Index), with a total market capitalization of 58.9 billion francs. UBS has dominated the market since its acquisition of Credit Suisse, managing several of the largest funds.

However, investors should be aware that premiums paid on real estate funds have fallen sharply due to the increase in interest rates. This raises concerns about overvaluation of some funds as discount factors used for property valuation have not adjusted to inflation and interest rate changes since 2022.

Despite these risks, Swiss real estate funds offer potential diversification and liquidity through daily trading on the stock exchange. However, investors must carefully evaluate their personal financial situations before making investment decisions in this asset class. Some may find that their existing allocation to pension funds already includes a significant exposure to real estate, resulting in an overweighted exposure to this asset class for some individuals.

In conclusion, while Swiss real estate funds present opportunities for investors looking for diversification and liquidity, careful evaluation of premiums, discounts, and potential risks is crucial before making any investment decisions in this asset class.

By Sophia Gonzalez

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