Those looking to invest in listed Swiss real estate funds must dig deep into their pockets. The average premium of listed Swiss real estate funds has risen from 16% to 32% within a year, and major Swiss real estate funds—Swisscanto Ifca and CS Siat—have premiums of a very high 50% and more. In simple terms, the investor thus pays CHF 150.- for something that is only worth CHF 100.-, hoping that the future increase in intrinsic value will more than compensate for any potential decline in the premium.
Fund managers often point out that the calculation of the intrinsic value of a real estate fund portrays the actual conditions too negatively. Thus, the intrinsic value also includes latent taxes and the valuations of the real estate within the fund often apply the principle of caution.
Nevertheless, high premiums should ring alarm bells for cautious investors. The prices of real estate funds are almost back to their peak during the pandemic at the end of 2021, even though the Swiss National Bank’s (SNB) key interest rate was then at -0.75% (today +0.5%). In our view, the downside risk of investments in Swiss real estate funds is considerable and the upside potential is likely limited.
