Domestic property remains attractive for institutional investors
The Lucerne University of Applied Sciences and Arts has analysed the investment behaviour of Swiss institutional investors in a study. Pension funds in particular are investing more in domestic property, while holdings of foreign investments remain stable. Increasing regulation is seen as the greatest investment risk.
According to a press release, the IFZ study Mortgage and Real Estate Investments 2025 by Lucerne University of Applied Sciences and Arts examined the investment behaviour of 228 institutional Swiss investors, including pension funds, insurance companies, investment foundations and funds. The Institute of Financial Services Zug (IFZ) at Lucerne University of Applied Sciences and Arts is based in Rotkreuz ZG. According to the study, domestic property in particular remains an attractive investment.
Pension funds (PFs) are maintaining their average real estate ratio of 24.3 per cent and largely intend to expand it further: 47 per cent want to strengthen their Swiss real estate portfolio, 49 per cent want to keep it stable and only 3 per cent want to reduce it. According to the study, a “home bias” is noticeable in all pension funds: the Swiss allocation of real estate assets is between 85 per cent (large pension funds) and 92 per cent (medium-sized pension funds).
“On the one hand, the fact that prices have been rising for over 25 years seems to confirm the stability of the market. On the other hand, investments abroad appear less attractive due to currency hedging costs and higher volatility,” said co-head of the study John Davidson on the preference for Swiss portfolios in the press release.
However, only 9 per cent of the investors surveyed believe that the upward trend will continue. The biggest concern for investors in the Swiss property market is increasing regulation. According to 82 per cent of institutional investors, this will soon lead to an end to the property upturn. Particularly complex building regulations (92 per cent), objections (90 per cent) and stricter tenant protection (88 per cent) are hindering further growth.
Risks such as a slump in economic growth (45 per cent), higher interest rates over a longer period of time (37 per cent) or weaker population growth (35 per cent) take a back seat to political and regulatory pressure.
The study is based on surveys of Swiss property funds, investment foundations and insurance companies as well as 135 pension funds. With an investment volume of CHF 568 billion, the pension funds surveyed cover around 50 per cent of the funds’ total assets.