As interest rates rise, real estate funds are under pressure due to increased premiums. Despite this, Swiss real estate investments remain popular among investors, both for direct and indirect investments. Currently, there are 42 real estate funds in the industry barometer SXI Real Estate Funds Broad with a total market capitalization of 58.9 billion francs as of April this year. UBS has dominated the market since the acquisition of Credit Suisse and manages several large funds.
Investors typically pay a premium, known as “agios”, on the intrinsic value of real estate funds. However, these premiums have fallen sharply in recent years due to the increase in interest rates. This has raised concerns about overvaluation of some real estate funds as discount factors used for property valuation have not adjusted to the rise in inflation and interest rates since 2022.
While Swiss real estate funds offer opportunities for diversification and liquidity through daily trading on the stock exchange, investors should be cautious about potential risks such as lack of control over fund managers or associated fees. It is important to consider personal financial situations, as Swiss pension funds already have a significant allocation to real estate, which could result in an overweighted exposure to this asset class for some investors.
Despite these challenges, Swiss real estate investments continue to be popular among investors and offer potential opportunities for diversification and liquidity through daily trading on the stock exchange. However, careful evaluation of premiums, discounts and potential risks is essential before making investment decisions in this asset class.