Swiss institutional investors hold approximately 19% of their wealth in property, and the bulk of the allocation to property is housing. The financial reasons which are often given to motivate this investment strategy are twofold. Firstly, property returns are hypothesised to be lowly correlated with the returns on stocks and bonds, and the inclusion of property in portfolios of financial assets should lead to diversification benefits. Secondly, property is viewed as acting as an effective hedge against inflation. The aim of this paper is to empirically investigate these two assumptions on the basis of hedonic price indices for Geneva and Zurich apartment buildings. In particular, it is examined whether an investor who already holds Geneva (Zurich) housing should invest in the other canton. It is also investigated whether real estate funds should be included in the portfolio in addition to direct real estate holdings. The results suggest that housing is an effective portfolio diversifier but does not provide any better short term inflation-hedging effectiveness than financial assets