"Private investors often have different objectives such as capital protection and they can therefore accept much lower returns than institutional investors," said Daniel Haecki, an associate at Jones Lang LaSalle Inc. in Zurich.
While Swiss insurers, which have invested about 13 percent of their assets in property, target real-estate returns of about 5.7 percent, they are struggling to find affordable projects, Jones Lang LaSalle, the world's second-largest publicly traded real-estate broker, said in a September survey.
"The competition is clearly increasing, resulting in more pressure on the returns," said Ralph-Thomas Honegger, chief investment officer of Helvetia, the country's fourth-biggest insurer. About 13 percent of Helvetia's 34.4 billion francs of assets was invested in property at the end of June, almost all of it in Swiss real estate.
Direct Investing
Wealthy investors have lost their trust in financial products and are looking for alternative solutions, including real estate, said Peter Damisch, a partner at Boston Consulting in Zurich.
Real-estate investments provide a buffer against inflation, said Frederick Shepperd, managing director of Shepperd Investors AG, a Kuesnacht, Switzerland-based family office. Investing directly is the "way to go" because higher costs and fees are making real-estate funds less attractive, he said.
Baloise, which prefers city apartment blocks of 20 million to 50 million francs, has about 5.1 billion francs, or 9.4 percent of the Basel-based firm's total investments, in real estate. Competition from wealthy private investors and family offices has increased over the past two years, making it more difficult for the insurer to meet its target annual return of 4.5 percent, according to Wenk.
"The consequence is that residential real estate has become more expensive," he said. "Private investors are now eating into the bottom end of our ticket sizes."