Hello, I am considering the possibility of moving to Geneva to work in finance. I have a friend that has done just that, and he is very happy, except for housing.

I have read several posts in this forum about housing in Switzerland, and I have checked www.homegate.ch, as suggested. I know that the question "buying vs renting" has extensively been treated in this forum, but after reading all these posts (using Search and tags) I still do not understand why the monthly payment from a mortgage is lower (and possibly considerably lower) than the rent:

1. A small detached house in, say, Bellevue, in Geneva canton (quite close to Geneva), may cost around 1,200,000 CHF, which represents about 3,200 CHF according to homegate as a mortgage. Renting would represent, if what I saw is correct, about 5,000 CHF. I have read that mortgages do not amortize capital, which makes that the monthly payment is only for interest. This is due, I think, to tax purposes: interest payments are tax deductible, capital amortization and rent are not (but I think there is a wealth tax that compensates this tax advantage).
2. Capital apreciation is low, around 2%. But if leverage is considerable, like eg puting only 20% of own capital, 2% is transformed into 10% if considered with respect to own capital.
3. Most Swiss people rent (about 70%).
4. Housing crisis in the world does not seem to affect much to Switzerland, because house prices is not due to subprime lending, but to scarcity of available land.
5. 1,200,000 CHF does not look too much for a house close to a big, rich city like Geneva, but 5,000 CHF for rent looks like too much (at least from a Spaniard point of view, of course, where renting is discouraged and, as a consequence, rents are low).

Why are people not buying then? If prices are the way they are, even a newcomer, shouldn't consider seriously buying instead of renting? Of course, being new in a place, the best is to rent (I have done that all my life) but if the difference is so big, isn't it better to do an intensive search, try to learn as much as possible, concentrate in a small zone, and try to buy as soon as possible?

But if people do not do it, it must be for some good reason. But reading the forum, I have not been able to find out why.

Ideas?

Of course, one answer could be that people do not have the 20%-30% cash necessary to buy the house.

But this would apply to young people, but once Swiss start saving (for what I have heard, salaries are quite good), after a few years they could have a little nest to buy their house. So, maybe not young people, but middle aged people could buy a house, which would not be a bad investment if leverage is allowed.

But according to the forum, 70% of Swiss rent.

This is what I do not understand.

Could it be excessive risk aversion?

It is because you need to bring such a big deposit, and living here is expensive, so it is not so easy to save, especially if you have children

I imagined so, thank you. One question about the deposit: is it always necessary to bring cash? or is it possible to offer an asset as collateral?

For example, with my girlfriend we have a small apartment in Germany that is buy-to-let. It is a good investment for us, and we would be willing to offer it as a collateral, but we would not like to sell it just to raise cash (it has no mortgage on it). Also, I have some participations in a solar energy company that do not trade in an exchange, so they are not liquid, and it would be a problem to sell these shares just to raise cash. Also, selling the assets would imply paying taxes, which could represent quite a lot of money. Do you think that a bank would accept assets as collateral?

The banks like cash, so the answer would be no sorry. When you buy a house your taxes are less expensive

I'm not very experienced in this, so no guarantees, but,I believe, depending on your earnings, the bank would like you to have around 33% cash.
Why is this so difficult:
Quite a few years after school are spent getting qualifications of some sort or another and during this time, you will be earning little or nothing and perhaps also paying out!
When you start earning 'good money' the rent, as you point out, and also general living costs, are so high that it is quite difficult to save enough. If you have children, owing to the school system (children coming and going all times of the day) and expensive child-care, it will difficult for both parents to work.
Maybe in middle age, after the youngsters have finally become self-supporting, one perhaps can find the money, but if you are living comfortably in a rented flat and enjoying holidays etc. does one really want the hassle of finding a place to buy, with all the disadvantages?

In your case, you can certainly try with the assets as collateral; I suppose basically, the bank just wants to make sure its money is safe. (It has successfully lost enough all by itself recently and can't afford to lose more)

Ok just asked my husband that works in a bank, and he says that you could take out a morgage on your house in your own country then bring the cash to the bank in Switzerland

A bank will be unlikely to take a property in another country as collateral becuase they can not seize the property if you default on your mortgage.
Don't know about the shares. When we bought our house we had to cash in investments abroad to bring CASH for the deposit and pay the buying fees/expenses.

Answer to the two previous (and kind) answers:

the problem is that I live in Spain now, and the property my girlfriend and I have is in Germany (where we both lived before). So, since we do not have income in Germany right now, I think it would be difficult to take a mortgage against a German property.

What I was thinking was more in the line of going to a German bank in Switzerland (eg, Deutsche Bank) and asking them a Swiss mortgage, with the collateral being the German property. Since for sure they have lots of experience with German property, maybe they could give us a German mortgage for our German property, and then with this money, have a Swiss mortgage. Or what would be completely equivalent, to have directly a Swiss mortgage having as collateral the German property.

Or this is what I would naively expect to be rationally meaningful. But of course, banks are bureaucratic beasts and may believe all this plan is orderly complicated. I do not know.

Your explanation makes sense. That is why probably it is a good investment to buy (everybody has the incentive to rent in Switzerland).

Some reasons why the Swiss rent instead of buying:

1) The Swiss believe it to be impossible to buy property. Buying has not reached critical mass here. If your friends don't buy - you don't buy. If and when you do buy, you are regarded as exceptional and most likely very rich and not conforming to the majority norm.

In the UK I was basically forced into buying by everyone I knew and a few I didn't. Here the advise runs the other way.

2) Tax on profits on property sale (Grundstuckgeweinsteuer in German) at up to 40% puts people off as does.

3) Eigenmitwert. The notional sum you save each year not renting which is added to your income.

4) Lack of a market: the Swiss tend to move once for life if they buy. We moved after 10 years and this raised some eyebrows.

5) The affore mentioned requirement to put down 20 - 30% of your own money. (There are some exceptions to this.)


But I agree totally that buying here seem the obvious thing to do. Mortgages are low and one only pays the interest which is tax deductible. But that 20 - 30% deposit is a big stumbling block...

OK, this has already been discussed before, so I will try not to be too repetitive. 1.2 million in Geneva will not buy you a decent terraced, let alone a decent detached house. What you see on Homegate are most often houses that have serious problems. In Bellevue that is probably due to the proximity of the airport, Route Suisse, motorway or railway. Most probably it will be two or even three out of the four nuisances above. And it will be a small house.

Even if you were lucky to find a decent house for that price, your monthly repayment rate would not be 3,200 unless you somehow negotiated the lowest variable interest rate that banks offer. If you were to fix your interest rate you would be paying around 5,000 with all associated costs.

Housing market in and around Geneva is very different from the rest of Switzerland. House prices went through the roof in just a few years. These increases mean that people with normal income have been priced out of the market. In most cases if you compared rental and sales market you would see that it is cheaper to rent.

Just a month ago I saw an ad where asking price was 1.15 million for a house that had been bought only 6 months ago for 980,000 (you can check this as all transactions are publicly available on the internet). I know several such examples. People think that houses in Geneva are so valuable that price does not matter any more.

My view may not be very popular here, but I simply can not believe that housing crisis in the US and UK can not affect Switzerland. This is what banks and real estate agents would like you to believe. I think that the rest of Switzerland may be more or less fine, because appreciation rate there has been following increases in income, but Geneva housing market looks seriously overheated and to me this means that it makes sense to wait.

Geneva housing market collapsed already in late 1980s. Prices went down 30 per cent and recovered to their pre-1990 level only in around 2000. Pictet, a renowned local private bank, recently estimated that prices in Geneva canton are currently overvalued by 30 percent and up to 50 per cent in neighbouring Vaud. Even if this is exaggerated, why be in such a hurry to buy?

The worst that can happen is that small houses in bad locations will be on the market for 2 million or more. In which case I guess only Lewis Hamilton will be able to afford them. Now whether he will want to live there is quite another matter.

That makes sense. I could not believe rent is 5,000 and monthly payment of the mortgage, 3,200.

Also, if there has been crazyness in transactions (like "prices do not matter") I can believe there can be a housing problem in Geneva. I only was asserting I thought there was none because I read that in Switzerland prices go up at 2% yearly, which does not look like a bubble.

In this case, yes, probably renting is the best for somebody new in Geneva (as it should be!).

Anyway, if it helps, the housing situation in Spain is much worse (and definitely a bubble!!!!!!!!!!).

I know nothing of Geneva prices, but in the greater Zurich area house prices have shown a rise of about 25% in 10 years = about 2.5% a year.

This is no bubble - certainly compared to the south UK's 400% over the same period. Demand outstrips supply and prices are not inflated compared to even the currently depressed south of England.

Mortgage rates really are low here. I am borrowing at 3.5% variable at the moment.

RECALCULATION!!

The breakdown is as follows:

Own capital is 20% of 1.2million = 240,000
1st mortgage 60% on 588,000 @3.5% = 1715 per month
2nd mortage 20% on 392,000 @4.0% = 1306 per month
est. amortization of of 2nd mortage 25yrs ets 1306 month

Totla cost 4328 per month

To compare with rent, I think you should add 1,000 (240,000*0.05/12, and 5% is what I would expect you could get if you managed your 240,000 in your accounts) to the 4,300, ie, about 5,300. This is similar to the rent, I imagine (am I right?).

In this case, even though it seems good to buy, it does not look like so much as a no-brainer.

Yes you could take into account that the amount you put into a property and deduct the lost interest on that amount.

However, if trends of the the 50 years are followed, the value property will increase by say 2.5% a year. Also if you rent, the rent will increase and you can be sure you will be paying more in rent in 25 years, but if you bought you would have paid off the second mortgage and by paying only CHF1715 per month...

Yes, you are right. But this assumes I will remain in my rented apartment for 25 years. And I do not pretend to behave that way: now I rent an apartment for which I was the first person living there. In 5 years, if I continue renting, I will move to another, new apartment.

In general, it does not make sense that something that once was new and now is not new anymore is more expensive now than then. Depreciation should have its toll.

But anyway, I agree with you: in general, it is better to buy than to rent, especially taking into account inflation. The only risk I see (and it is a big risk) is of a sudden downturn in housing prices. The world has been living out of cheap money, and this party is over. Of course, the world will grow ultimately, but in the interim, who knows.

It could happen a housing crisis again.

BTW, I have read that in the late 80s there was a housing crisis in Geneva. Can anybody explain what happened then?