Risks to Switzerland's housing market increased further in the first three months of the year, raising the question as to whether authorities have taken sufficient steps to prevent the bursting of a bubble.
The UBS Swiss Real Estate Bubble Index rose to 1.17 points in the first quarter, from 1.11 points in the three months to December. A reading above 2 would indicate a bubble.
"The risks in the real estate market have continued to rise," said UBS analysts Matthias Holzhey and Claudio Saputelli.
With the central bank easing policy to take pressure off the franc, Switzerland is in the throes of the biggest rise in real estate prices in 20 years. The Swiss National Bank (SNB) has held its benchmark interest rate at zero since August 2011 and in September of that year capped the franc at 1.20 per euro to shield the economy from the crisis in the neighbouring euro region.
Cheap credit has buttressed property demand. High immigration has also kept demand for housing strong.
The housing markets in Lucerne, Innerschwyz and Glattal-Furttal near Zurich are now among those deemed most risky, in addition to the commercial centres of Zurich, Geneva and Lausanne, the analysts said.
In a bid to curtail risk, the government in February announced that banks would have to hold additional capital to guard against losses on mortgage loans. The rules, which come into effect in October, are in addition to new guidelines introduced last June to discourage banks from handing out loans to clients who cannot afford them.
Even so, the rise in the first-quarter index was caused by increasing prices and more mortgage lending, combined with stagnating household incomes and consumer prices.
Last month, SNB vice-president Jean-Pierre Danthine said it was too early to say whether the capital buffer was having any effect. Household indebtedness, chiefly due to mortgages, is also rising at a pace faster than economic growth, further grounds for concern, Danthine said.
The SNB holds its next quarterly monetary policy review on June 20.
This is not the time Switzerland has suffered from inflated property prices. In the 1990s, a collapse in house prices tipped the economy into recession and caused the failures of banks.
The index comprises six sub-indicators and tracks, among other things, the relationships between purchase and rental prices, house prices and household income, and house prices and inflation.