Was gonna make the same point but you beat me to it. It matters very much indeed as you might be forced to realise a paper loss if / when prices fall off a cliff.

We've discussed these scenarios at length and people's opinions are biased and very much depend on their current situation (owners vs non owners) as well as their future aspirations and financial fire power (wanna be buyers vs happy renters).

Let's not derail this thread

The thing is you can't effectively short the housing market, so the negative sentiment is not reflected in the market price unlike the stock market. This can lead to a serious adjustment in house prices when the market changes direction.

Which is why the banks have such draconian affordability requirements on your income and demand 1% amortization per year. People who get the loans can actually afford to take the risk. And it's only a temporary loss, you're not forced to sell, if you can pay.

No risk, no gain.

IMHO current returns on property very well compensate for it, thanks to low low interest rates and high leverage possible with mortgages.

It's not, both for you and bank. For you it's the cheapest money you can lay your hands on. Banks also still can make a nice profit for themselves in light of negative to zero rates at which they get the money..

Regulatory requirements designed to prevent the next housing price bubble.

Property is a high risk asset class and if you look at typical low risk portfolio you will see that the property element is well in the single digits. The rules exist to try and ensure people do not get into difficulty by over extending themselves.

If you don't meet the rules, then it suggest that you'd be taking on risks way beyond your ability to deal with should it all go wrong. You only have to look to Ireland to see how family lives can be ruined by bad mortgage decisions - health issues, lack of fund to support kids advancement in education, even suicide in some cases.

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"There is no passion to be found playing small - in settling for a life that is less than the one you are capable of living." - Nelson Mandela

And yet that is invariable the reason why most financial models fail - the ignorance and the arrogance of ignoring behavioural finance. Over the past thirty years I've been in the room on may occasion when what we now call Financial Engineers explain way there model is not working - surprise it does not model the human element.

This a very real problem for society as we will see most likely first in the US going forward. If voters do not have enough to live on, then they'll put politicians in place to make sure they do, so even if you do well in managing your money, the fact that your neighbours do not will impact you too.

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"There is no passion to be found playing small - in settling for a life that is less than the one you are capable of living." - Nelson Mandela

Why do you think the US will be the first?

Less risky than stocks. In 90's the drop in swiss prices was only around 30% I think, from which they have long fully recovered. Although, of course, with mortgage gains/losses on your own invested capital would get amplified

And in the event of a total financial collapse, you'll at least continue to own the property, whereas stocks or cash would easily devalue.

Low risk = low returns. But I guess some people enjoy the financial stability they get by forking out 2000-3000+ to rent every month. No the risks associated with owning property, but also no benefits from price growth either, just money thrown away.

Unless you add 4x leverage like it's the norm here. Due to that the typical new homeowner saw his 20% equity wiped out in 5-6 years, and then some.
Except you don't. At best you own 20%.

You still own the stocks? Stocks are fractional ownership of a business, your percentage of ownership does not change. With a geared investment like a house with a mortgage you get wiped out due to cash calls quite quickly.

The property has also devalued, I don't understand your point.

Huh? If I bought the property for 1M with a 800k mortgage, and sold some years later for 2M, are you saying the bank should get 1.6M cut? No way.

It's a much more tangible asset than stocks.

Yeah, but if a company goes down, as a shareholder you're the last in line to get anything from it. Most companies (except maybe financials) are severely overpriced anyway in terms of price/book ratio - what you're buying mostly is just a hope for future returns. Which can be gone pretty quickly should the things head south, as we all saw in 2000's and 2008.

And what good is, let's say, a 0.000001% ownership of a factory building? You can't really do anything meaningful with such small a share, but sell. Whereas as a 100% owner of your own house, you could at very least live in it.

I guess your an accountant, no interest in winding up a business to sell the assets. If interest rates are below 5% in 10 years, then valuations are not high. Who would have believed that interest rates below 1% for over 5 years were even possible 10, 20 or 100 years ago

Your buying future cash flow, the price someone is willing to pay has no relevance to book value. A factory building is a depreciating asset, no interest in owning property.

Of course not. But at the time you buy you effectively own 20% only. If you really owned 100% you wouldn't have to inform the bank when you want to sell.

Can someone suggest me which company is good to open a 3rd Pillar now in Switzerland?

Depends on what you want.
If you just want interest you can just search on Moneyland or something similar for the highest interest, which would be at 1% for now.
If you want to invest in Fonds or ETF the best choices I know of are:
Vermögenszentrum Finanzportal, where you can invest 80% in Stocks in ETFs or Indexfonds for 0.68 all in fee plus the TER of the ETFs (around 0.18% on average).
Another possibility for 80% Stock is at Postfinance, but it is quite heavy on Swiss stocks and a bit more expensive. (0.92% or something)
If you just want 50% stock 50% bond allocation or less, the cheepest I found is Liberty invest, where you can get the cheapest ETF for a total fee of 0.68%.

if you don't have to open it (e.g. for indirect mortgage amortization), I wouldn't bother with it, they're all trash. Otherwise your mortgage bank, or Vermögenszentrum as they're the only one allowing you to go 80% and giving you some real investment choice and only moderately expensive: 0.68% fees would just about counterbalance income tax savings on today's ca 2% dividend yields, if you earn high enough. If you're a low earner, avoid all of them like a plague.

I'm also thinking about 3rd pillar. I earn 48k per year and I manage to save 12k per year. I'm single, no kids and live in BS. I will invest 12k/year in Vanguard ETFs with a low cost broker that costs me almost nothing. But now i'm reading this stuff about 3rd pillar. Would it make sense to put 6768 in 3rd pillar (ETF) and put the rest in normal ETFs? Ivan, would you advice against it?

At that income your marginal income tax rate is like 10-15%, if not less, Minus 5% withdrawal tax = 5-10% is what you gain in tax advantage on pillar 3a. Is it enough to bother? One more bull year on the stock market might easily deliver this performance as well

Among 3a providers, the only one which allows you to buy ETFs currently is Vermögenszentrum, and they are batshit expensive.

First, account maintenance is a rather high 0.68%. OK, for a high earner that's probably not much to complain about - you'd pay about the same in taxes on dividend distributions in a regular broker account, but for a low earner, it's a big real cost. Lock the money in with them for enough years, and they'll eat clean any tax advantage you've got when you paid in

Second, apparently they charge 0.68% on cash portion of your account too, so if you keep the maximum possible 80% in stocks and 20% cash, the real account expense, as calculated just on the stocks portion, like many other 3a providers do, rises to a whopping 0.85% and uninvested cash remains a drag on portfolio performance. Add non-reclaimable 15% US dividend taxes, lost somewhere one way or another, and the expenses probably rise somewhere to 1-1.15% region, ouch...

Third, you can hardly buy the real low cost ETFs with them, the type with 0.04% expense ratio. The cheapest they offer is Vanguard 500 UCITS, with 0.07%, and you can only buy a small percentage of it (27% I think?). The rest, for some unknown reason, must be hedged, so they force you to buy much more expensive hedged ETFs for the most of your portfolio. On the plus side you don't have to care about USD/CHF, but that's a bet on swiss frank being fair/under-valued. A bet that even your central bank doesn't share.

So if I got it right, it works like that:

48000CHF, tax rate 8,39% = 4020 of taxes
48000CHF - 6768CHF = 41232CHF, tax rate 6,72% = 2760 of taxes

I put the numbers in my spreadsheets and break even point is between 15-20 years.

OK! Being a public holiday I cant call my bank to ask the questions so here goes.

I've searched the forum but didn't see this: If I wanted to take money out of my 3rd pillar and use it to help my sister purchase a property in the UK where I will most likely retire in 7 years. Can I? I've had the 3rd pillar account about 8 years and have a C permit. Or can the money really only be used for property here that you will live in?

Also, my 3rd Pillar is with the bank I used to have my current account with. I've since changed banks so can I move my 3rd pillar to the bank I am now with?

I can't remember all the ins and outs, but,

1) the property has to be in your name, or your name has to appear on ownership documents
2) It must be your primary residence, you are not supposed to rent it out.