Dividend yields of Swiss real estate funds in 2022

12.07.2022 | Dr. Thomas Spycher, Iryna Levytska

Summary

  • Prices of traded Swiss real estate funds saw a substantial decline over the first 6 months of 2022.
  • Dividend yields increased on average by 38 basis points or 15.2%.
  • The shift occurred for all funds and over all usage in a similar way.
  • Dividend yields have reached on average a similar or even higher level than the dividend yield of dividend paying investment foundations within KGAST Immo-Index of the same usage.
With the change in the interest rate environment and the 50 basis point increase in the SNB policy rate, the environment for indirect real estate investments has changed. The SWIIT index of listed real estate funds plunged nearly 15% over the first 6 months of 2022. SIX-listed real estate stocks had a performance of -7% over the same period. After years of falling interest rates, falling discount rates and therefore increasing property valuations, the generated cash flow becomes now the main focus.

Strong increase in dividend yields

Since the dividend yield is inversely proportional to the share price, this change in price has resulted in an increase in the dividend yield. The chart below shows the dividend yield for each fund with values calculated as of beginning of the year and as of last Monday (11.07.2022). The average dividend yield increased from 2.5% to 2.88% by 38 basis points. The chart shows, that yields of 39 out of 40 funds increased and there is nearly a universal change in level.

Increase in yield over all property types

Dividend yields differ clearly by usage and commercial property yield higher, usually connected to a higher risk. We assign the funds based on the share of commercial properties in the fund portfolio. “Residential”, “Commercial” and “Mixed”. Dividend yields of residential property funds increased on average by 28bps, mixed funds increase by 38bps, commercial funds by 51bps For each usage, the relative increase was in the range of 13-18%.

Yield level now similar to KGAST Immo-Index

For many pension funds, investment foundations are the preferred tool for indirect real estate investment. The price of investment foundations is generally less volatile as they are traded at the NAV and thus do not built up agios/disagios. The dividend yield of investment foundations (only dividend paying foundations) offers a rough comparison of the current level of dividend yields. Generally, the funds’ dividend yields are now in line or even higher than dividend yields of investment foundations. It is not possible to make a statement on the quality of the underlying assets and therefore the risk involved, but it offers a rough idea where the current yields stand.

Average 01.01.2022 Average 11.07.2022 Change in basis points (change in %) Dividend Yield KGAST Subindices 2021
Commercial 3.48% 3.99% 51bps (+15%) 2.82%
Mixed 2.09% 2.47% 38bps (+18%) 2.31%
Residential 2.08% 2.36% 28bps (+ 13%) 2.33%
Note: Fund data as of 11.07.2022. KGAST Yields 2021 use only dividend paying investment foundations and are weighted by the respective KGAST index. As many investment foundations are accumulating, the value provides only a rough comparison.

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