The opportunity of risk
Since the asset class has long been an inflation-resistant, stable-value investment, “risk management” has been an uncommon term in real estate. In Switzerland, though, where the market has fared so well since the financial crisis and the real estate bubble that caused it, investors wonder if the market still holds opportunities.
Knowing local market conditions and analyzing these alongside long-term investment targets clarifies for investors whether targets are achievable or adjustments to strategy are needed. Any choice – including doing nothing – brings the chance of gain or loss, so assessing conditions in a context of investment goals is crucial.
Swiss market investors need to consider that local interest rates are unlikely to drop further, but will eventually rise. Consumption of area per capita, long a growth factor, has reversed, and will limit domestic demand. Competition in commercial and residential segments is rising due to oversupply. Also, the drive to modernize properties is strong, and will affect especially older types.
Switzerland has been a fairy tale land for real estate investors
Using risk to study portfolios
Swiss Real estate investors face cyclical risks that stem from economic, societal or political conditions, and can be considered systematic risks, since they would affect all properties within a defined market, influencing supply and demand. Since systematic risks affect all properties equally in a general geographic area, for example, investors grasp intuitively that these risks cannot be minimized or eliminated by diversifying a portfolio.
Property risks, on the other hand, stem from particular characteristics such as land condition, building or technical features, legal situation and so on, and are classified as unsystematic, since these will vary from one property to another. Properties’ differences protect an entire portfolio against suffering a collective loss in value due to the quirks of just one.
Investors in real estate should include a range of types – residential (single or multi-family), commercial (office or retail) – as well as locations. There’s a wide world beyond Switzerland, full of opportunities – and risks. Those who clarify their objectives and engage the local conditions – including currency risks or national economic fluctuation – can build well balanced real estate portfolios.
But why stop at real estate? UBS CIO advises that a small allocation of real estate investment in a mixed portfolio of asset classes can clearly improve overall risk-return ratios.
UBS CIO’s annual flagship study, among the most interesting areas for property investment signals the Lugano area, intended as a large area, so even in public areas, a 15-minute drive from the place of work generally. Ebuyhouse real estate proposes several interesting properties in income, both for institutional investors and for small private investors,you can also find magnificent villas, apartments in the city center, luxury penthouses overlooking the lake, villa Montagnola, villa Castagnola.