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Old 22.11.2020, 12:06
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Raising of maximum allowable ROI on rental property from 0.5 to 2%

According to a recent decision of the Swiss Federal Court, the allowable net ROI on rental property has been increased from 0.5% to 2% above the reference mortgage rate (now 1.25%)

as an example: the maximum allowable net ROI of a 1mil apartment has been raised from 17'500CHF to 32'500CHF per year. Which after the generous allowable deductions and Nebenkosten might mean a rate of maybe 45'000 CHF for a 1Mil apt.

I wonder, will this decision have any effect on the rents, after all - as discussed on this forum already - the rental return is very low in Switzerland as compared to other countries - of course the prices are high.

http://relevancy.bger.ch/php/aza/htt...20-4A_554-2019
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Old 22.11.2020, 12:21
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

Looking at it from a purely business viewpoint, the logic makes sense - nowhere else would you be able to rent an item for 1.75% of its value. But housing is a bit different due to the limited supply, so competition is limited and you could argue it isn't a normal market so pure market rates can't apply.

I can't see how it could be implemented without causing chaos if lots of landlords suddenly try to put rates up that much.

Also perhaps this impact is only because property prices are too high, but the result of this decision is likely to just be even higher prices!
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Old 22.11.2020, 16:11
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

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Looking at it from a purely business viewpoint, the logic makes sense - nowhere else would you be able to rent an item for 1.75% of its value. But housing is a bit different due to the limited supply, so competition is limited and you could argue it isn't a normal market so pure market rates can't apply.

I can't see how it could be implemented without causing chaos if lots of landlords suddenly try to put rates up that much.

Also perhaps this impact is only because property prices are too high, but the result of this decision is likely to just be even higher prices!
London rents have an appalling net ROI, probably sub 2% but then prices may fall significantly.

It's probably to allow capital values to fall, rather than anything else, most people pay as much as they can in Rent already.

Last edited by fatmanfilms; 22.11.2020 at 16:55. Reason: spelling
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Old 23.11.2020, 08:12
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

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Looking at it from a purely business viewpoint, the logic makes sense - nowhere else would you be able to rent an item for 1.75% of its value. But housing is a bit different due to the limited supply, so competition is limited and you could argue it isn't a normal market so pure market rates can't apply.

I can't see how it could be implemented without causing chaos if lots of landlords suddenly try to put rates up that much.

Also perhaps this impact is only because property prices are too high, but the result of this decision is likely to just be even higher prices!
Indeed, the mere fact that mortgages don't need to be repaid maket it already quite a distorted market. Looking at the ROI on invested capital (vs. purchase price) gives a much better picture, albeit with a 3-4x leverage.

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London rents have an appalling net ROI, probably sub 2% but then prices may fall significantly.

It's probably to allow capital values to fall, rather than anything else, most people pay as much as they can in Rent already.
I am not sure the current decision would affect purchase prices (if that is what you meant by "allowing capital values to fall").
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Old 23.11.2020, 09:02
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

prices are high because rates are low. bond yields are negative and alternative investments are also already at high prices.

since you can lock in rates for 10 years or more, you can calculate the profit from the spread and discount it back and subtract this from the purchase price to give an adjusted price net of the implicit saving from low interest rates.

It's probably still high because I suspect buyers are doing a similar calculation assuming rates stay low forever.

If rates stay low for 25 years, then you can have the mortgage paid off and re-couped your initial investment within that time (or less if you buy at a more reasonable price).
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Last edited by Phil_MCR; 23.11.2020 at 09:15.
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Old 23.11.2020, 16:22
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

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London rents have an appalling net ROI, probably sub 2% but then prices may fall significantly.

It's probably to allow capital values to fall, rather than anything else, most people pay as much as they can in Rent already.
My property and my wifes combined comes to about £650k. Our net monthly rental income minus service charges is around £3000.

So for us closer to 5% than 2%.
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Old 23.11.2020, 16:26
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

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My property and my wifes combined comes to about £650k. Our net monthly rental income minus service charges is around £3000.

So for us closer to 5% than 2%.
Whats the area? Zone 1/2/3 or within M25, hard pressed to get anything close to that in Central London.

My parents house in Highgate N6 was not even in London in 1961, it says Middlesex on the deeds!
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Old 23.11.2020, 16:42
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Re: Raising of maximum allowable ROI on rental property from 0.5 to 2%

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Whats the area? Zone 1/2/3 or within M25, hard pressed to get anything close to that in Central London.

My parents house in Highgate N6 was not even in London in 1961, it says Middlesex on the deeds!
Hers is in Westferry - 5 minutes walk north of canary wharf. Zone 2

Mine is half way between East Putney and Southfields tube stations. Zone 2/3.

Have to say FMF - I never had you down as an Highgate type - proper muesli belt territory!

I presume the house is in Haringey given that it was outside London in 1961 - most of Highgate (Camden and Islington bits) would have been in London much earlier than 1961.
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