Swiss real estate funds: understanding the premium

A listed Swiss real estate fund carries two prices: the value of its buildings as assessed by independent valuers, and the price at which its units change hands on the exchange. The gap between them, known in Switzerland as the agio, is a useful gauge of investor sentiment and of interest rates. 2022 showed how quickly that premium can deflate.

One fund, two prices

A property fund’s net asset value (NAV) is the estimated market value of its portfolio, less mortgage debt, deferred taxes and other liabilities, divided by the number of units. It is published at least once a year and rests on independent valuations.

The market price, by contrast, moves every trading day on SIX Swiss Exchange. When it sits above NAV, the fund trades at a premium (agio); below NAV, at a discount (disagio). Take a fund with a NAV of CHF 100 per unit trading at CHF 130: a buyer is paying a 30% premium, or CHF 30 more than the estimated value of the underlying assets.

Why pay more than the buildings are worth? Because a unit offers what a directly held building does not: daily liquidity, diversification across dozens of properties, professional management and, for some funds, favourable tax treatment. Investors can also redeem units with the fund manager, but it is slow: fund contracts typically require twelve months’ notice to the end of a financial year. Anyone wanting out quickly must sell on the exchange at the prevailing price.

A decade of negative rates

On 15 January 2015 the Swiss National Bank (SNB) abandoned its minimum exchange rate against the euro and cut its policy rate to -0.75%. It stayed there until June 2022. Throughout that period Swiss government bonds yielded little or nothing, and property fund distribution yields looked very attractive by comparison to pension funds, insurers and private savers alike.

Demand for units far outstripped supply and prices drifted well away from NAV. According to Credit Suisse Asset Management, the average premium on listed funds stood at 42.0% at 31 December 2021. UBS Asset Management puts the peak at over 40% in summer 2021, against a long-term average of around 20%.

The logic is straightforward. NAV relies on discount rates that valuers adjust only gradually, whereas the stock market reprices immediately. With reference rates at or below zero, a steady stream of distributions was worth more to investors than the valuations implied.

2022: the turn

On 16 June 2022 the SNB raised its policy rate from -0.75% to -0.25%, its first increase in fifteen years. On 22 September it moved to 0.5%, ending the negative-rate era. Bond yields climbed and the main rationale for paying a premium on property funds fell away.

The correction was sharp. Over 2022 as a whole, the SXI Real Estate Funds Broad index lost 15.2% including distributions. The average premium fell to 13.6% at 31 December 2022, roughly a third of its level a year earlier. Valuations, which are revised only slowly, did not move at the same pace: most of the shock was absorbed by the price, and therefore by the premium.

Date	Average premium, listed funds	Source
31.12.2021	42.0%	Credit Suisse AM
31.12.2022	13.6%	Credit Suisse AM
31.12.2023	16.2%	Credit Suisse AM
30.04.2024	19.5%	Credit Suisse AM
End October 2025	c. 37%	UBS AM

The subsequent recovery reflects the reverse movement: the SNB began cutting in March 2024 and reached 0% in June 2025, and the premium rebuilt accordingly.

The benchmark index

The SXI Real Estate Funds Broad index, calculated by SIX, covers Swiss-listed property funds that invest at least 75% of their assets in Switzerland. Constituents are weighted by full market capitalisation and the composition is reviewed each September. The total return version, SWIIT, reinvests distributions; the price version, SWIIP, does not. Both were set at 100 points on 1 January 1995.

The index is a handy yardstick, but it blends very different vehicles: residential, commercial and mixed funds, whose premiums can diverge considerably.

The tax case for direct ownership

A Swiss peculiarity helps explain why some funds command a higher premium. A fund holding its properties directly is treated as a legal entity for federal direct tax purposes (Art. 49 para. 2 of the Federal Direct Tax Act): it pays tax itself on its property income, at a federal rate of 4.25%. In return, the portion of distributions derived from that property income is not taxed in the hands of unitholders, as Circular No. 25 of the Federal Tax Administration sets out. According to an analysis by Forvis Mazars, Swiss-resident private investors are generally also exempt from wealth tax on that portion.

A fund that holds its buildings through property companies does not benefit in the same way: the companies are taxed, and distributions are taxed again at investor level. For a Swiss taxpayer with high income and wealth, the difference can be material, and the market prices it in.

Key takeaways

The premium is neither an anomaly nor a guarantee: it reflects what the market is prepared to pay for liquidity, diversification and tax treatment, and it is highly sensitive to interest rates. The 2021-2022 episode shows that an investor who bought at a 40% premium could lose a large part of their capital without any change in the value of the buildings. Our view: before buying units, comparing the current premium with its historical average is at least as useful as looking at the distribution yield. A direct-ownership fund only makes tax sense for an investor whose situation genuinely allows them to benefit from it.