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Old 04.01.2012, 20:26
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Thinking about buying. Good/bad idea with a housing bubble?

I've been soaking up most of the housing threads on EF right now and wanted to ask opinions on whether it's a good (or terrible?) time to buy or even realistic. The latest thread on the housing bubble has me kind of nervous about what's going to happen to the market around Zürich.

My husband and I currently rent a 2 room flat in Zürich for around 36k a year. We've saved up a bit of money so that buying is possibly an option, with the main idea being that we would save money with mortgage payments instead of monthly rent.

We'd like at least a 3 room flat in the 300-600k range, with the higher end of that scale being more of a stretch for us. Obviously for this price range we're looking at places outside Zürich close to public transit and not too far of a commute to work. DH is Swiss, so no issues with permits I hope. I'm American, but wondering if moving towns or Kantons will screw up my Swiss Passport application in a few years. (separate issue, but something on my mind)

If Switzerland is really at the start of a housing bubble, does it make sense to buy before the bubble inflates and pops? Or would you avoid it altogether? (EG, keep paying 36k per year in rent or move to a crappy flat if I want to save money?) What if we want to buy in 5 years and the prices are unrealistically high for how much we've saved while renting? Of course no one can tell how long a bubble would last, when it would crash, how low, etc. All a big "what if" I know. (Where is the crystal ball??)

We have a lot of amenities now, eg top location, fireplace, washer and tumbler in flat, balconies, etc. so we are used to a certain quality. I would give up certain perks if the mortgage was worth it… but if we end up still paying 2k or something a month especially with mortgage rates increasing, it's not really worth it to give up our liquidity and move way outside of Zürich.

As a local, DH is skeptical about buying because we are youngish and he was taught you buy your house in 40s to 50s, if at all. I would like to start saving in rent now while we are young vs spending decades saving up for a 2million or whatever home. (Or moving out to the stix because we can't afford more after years of renting.) We are planning to settle in Switzerland, but DH might leave in 5 or so years to study for 1-2 years, or possibly work abroad for a year or two, which I would maybe join depending on the country and what our situation was. In theory, I'd like to either keep a flat and pay the mortgage or rent it out if possible if we even leave. Part of why I'd like to save money in rent is to help save up for his schooling and to have a place I could afford on my own if he's abroad for a year in school.

Has anyone bought in this price range and have an actual mortgage rate/monthly cost you're willing to share? I've read a few examples on the forum so far... but it's hard to tell what homegate/ubs/comparish mortgage calculators say vs what you really end up paying.

With the possibility of a bubble coming up, would you recommend staying away from Neubau? We've seen so many attractive looking new builds, but the prices are usually more out of our reach compared to used flats. If the prices go bust, wouldn't the new builds be the first to go down in value?

Are the flats/houses left on homegate generally rubbish that won't sell? I've heard if I really want something I should go out and network or visit areas to look for ads. Not sure how true this is...

Are flats in the 200-350k range good investments if you want a low mortgage? I'm not sure I can convince the DH that we don't need a fireplace... We are interested in buying if the numbers work for us, but there seems to be a lot of uncertainty in the housing "market".
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Old 04.01.2012, 20:50
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Re: Thinking about buying. Good/bad idea with a housing bubble?

The Short Answer: Switzerland is demographically in a liquidity trap. House prices have moved sideways for 20 years now. They collapsed after 1992 by 35%. Just recently prices have recovered.

If you bought a house in 1992 it would be the same value today. So the prices are cyclical and not secular.

But with that said, if you are planning to stay in that apartment for a long time, it doesnt matter if you "over-pay" a bit. So you should see if there is something you like and go for it.
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Old 04.01.2012, 21:55
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Re: Thinking about buying. Good/bad idea with a housing bubble?

Zuger's post just says it all.. Also, having been myself in the situation btw buying and not buying, and having done lots and lots of research over the last weeks, talking to real estate agents, reading interviews and articles.. my recommendation is clearly: do not buy now in the hot areas (Geneva and surroundings, Zuerich). Prices have risen to unreasonable levels due to booming economy and consequent immigration but economy is entering recession in CH. We are at the end of the cycle. At best, predictions say that prices will stay at present levels during 2012. At worst, if the euro crisis isn't solved, they will initiate a dramatic downturn. I personally will reconsider buying vs not by the end of 2012..
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Old 04.01.2012, 22:09
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Re: Thinking about buying. Good/bad idea with a housing bubble?

BOth the posts so far are excellent. The advice has to vary according to the area you are in. Also, according to the property you buy in terms of maintenance required and hidden costs going forward.

Here in the gentle property climate of Oberere Baselbiet, in 5 years we have not made money but have not lost money either, and involvement in a previously buoyant UK property market let us move to CH with a very large down payment meaning that for the last 5 years we have probably not paid in one year what you pay as rent in one month.

So it is all very dependent on whether you currently have enough money to live on whilst spending so much on rent, whether you have a good enough down payment to shelter you from property downturns, whether you will be buying in a market where it is suffering from property price over inflation and whether you consider you will be staying in this flat for at least the medium term, if not long term.

The one thing I would not take into consideration is any concern about qualifying residence for Swiss naturalisation. To make a purchase make sense, you will need to be living there for a good while - long enough to overcome most of the more punative Cantonal rules regarding length of residence.

For what it is worth, if I was in Geneve or Zurich, I would only buy if my personal circumstances were so settled that it seems inconceivable that we should want to move for years to come. And even then, have in your back pocket enough savings to be able to move anyway .. life has a habit I have found of biting you on the bottom when you least expect it. So to speak.
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Old 04.01.2012, 22:09
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Re: Thinking about buying. Good/bad idea with a housing bubble?

Now is the perfect time...to sell!

Honestly I was in the position to buy a house last summer and pulled out after doing some thinking. Prices in most areas are simply far too high even when Swiss salaries are taken into account.

My opinion is that it is a better option to save for a few years and buy when the prices are back to normal, I would say not more than 4-5 X a standard annual family income (that is 500 to 700 KCHF, not millions like in the Geneva/Lausanne area these days).
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Old 04.01.2012, 22:14
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Re: Thinking about buying. Good/bad idea with a housing bubble?

Think of it this way: You can lose up to 36K a year for deflation, mortgage payments, works, etc and be in the same position as you are now. If you gain any more than that, then you are golden. Anyway, you only lose if you sell. Hopefully even if the property did lose value, you could hold on to it and/or rent it out. Personally, I don't believe it will lose that much value if you choose a well located property that doesn't need work (etc). There is still a shortage of housing.

As for payments, don't believe the comparis calculations. Most likely you will get a mixed rate mortgage so the low low rates you see are not right. If you use the site, put the interest rate around 4 or 5% to see if you can afford it.
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Old 04.01.2012, 22:27
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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Hopefully even if the property did lose value, you could hold on to it and/or rent it out.
I would be cautious on this one. I know it works well in the UK (I have a property there that I rent out) but here in Switzerland I would be reluctant to do it.

Simply because it is nearly impossible to get rid of tenants if you want to sell your property or occupy it, or if the tenants are not taking care of it.

This may be one of the reasons why it is difficult to find rented accomodation in Switzerland - too much regulation and protection for tenants.
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Old 04.01.2012, 22:30
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Re: Thinking about buying. Good/bad idea with a housing bubble?

in reality, your mortgage will depend on appetite to risk, but in any case should be no more that ~2.5%.

all the conditions are here for a swiss housing boom - but the economic environment is volatile and things could change quickly.

you also need to decide if you want a place live or an investment.

when the next economic shock comes, i'll be looking at investing in london with a view to buying property at reasonable prices with a view to having mortgage debt eroded by sterling devaluation.

i don't think switzerland is a bad bet, but it is large and illiquid and a PITA compared to a more liquid and landlord friendly environment such as london.
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Old 04.01.2012, 22:33
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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Simply because it is nearly impossible to get rid of tenants if you want to sell your property or occupy it, or if the tenants are not taking care of it.
Is it really so hard to get rid of tenants if you want to occupy your own building?

Back to the off point about moving Cantons/cities... it's more that it seems I have almost fulfilled the number of years required to be in Schweiz to apply for the naturalistion, but if it has to be the same town... I should maybe stay here a bit longer. Unless I am fine with starting the count over and waiting another 5 years or so in a new place. I would like the red pass as soon as possible.

Many good points here. Seems lots of EFers are pretty down on the housing market at the moment. I wish I was here to buy a flat back in the early 2000s!

For us it would be an inbetween place to a house some day. 2 bedrooms would afford the possibility of having a kid (or maybe 2) in 10 years or so. Not quite sure how long we'd want to hold on to flat living. All the more to think about. The current market is a little off-putting lately.
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Old 04.01.2012, 22:49
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Re: Thinking about buying. Good/bad idea with a housing bubble?

depends on how long you are prepared to wait - the market can stay irrational for longer than you might care to wait.

i know of several people who decided to wait out the UK bubble but aside from a small pull-back in 2008, they haven't really managed to get anywhere near the discounts they were expecting.

no doubt house prices are crashing in real terms, but currency devaluation is masking much of it. a similar scenario could play out in switzerland.
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Old 04.01.2012, 22:53
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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I would be cautious on this one. I know it works well in the UK (I have a property there that I rent out) but here in Switzerland I would be reluctant to do it.

Simply because it is nearly impossible to get rid of tenants if you want to sell your property or occupy it, or if the tenants are not taking care of it.

This may be one of the reasons why it is difficult to find rented accomodation in Switzerland - too much regulation and protection for tenants.
Although it's a risk, it's a low risk. There are relatively few incidents of tenants digging their heels in.


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Is it really so hard to get rid of tenants if you want to occupy your own building?

Back to the off point about moving Cantons/cities... it's more that it seems I have almost fulfilled the number of years required to be in Schweiz to apply for the naturalistion, but if it has to be the same town... I should maybe stay here a bit longer. Unless I am fine with starting the count over and waiting another 5 years or so in a new place. I would like the red pass as soon as possible.

Many good points here. Seems lots of EFers are pretty down on the housing market at the moment. I wish I was here to buy a flat back in the early 2000s!

For us it would be an in between place to a house some day. 2 bedrooms would afford the possibility of having a kid (or maybe 2) in 10 years or so. Not quite sure how long we'd want to hold on to flat living. All the more to think about. The current market is a little off-putting lately.
If you are married to a Swiss citizen than there are no limits on where you live and for how long. Either you live IN Switzerland for 5 years and are married for 3 years, or if you don't live in Switzerland then you have to be married 6 years. You are going through Facilitated naturalization which is federal and have nothing to do with the cantons/communes.

If you don't feel comfortable with the potential risk, you should probably not buy. But then again there is always some sort of risk.
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Old 04.01.2012, 22:56
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Re: Thinking about buying. Good/bad idea with a housing bubble?

My 5 Rappen:

The first consideration when deciding whether or not to buy a primary residence should not be financial. A home is more than a piece of your portfolio; a home is - to invoke that old cliché - where your heart is.

Switzerland is not a mobile property market in the way that the US is. The American idea of a starter home, then five years later moving up the property ladder, up again and again and again, until you downsize in retirement is not really the done thing here. Many people will buy one home in their lifetimes, plan that they will only move our of their home feet first. With this in mind, that 'home is where the heart is' becomes even more important. Have you found a place that has captured your heart?

Unlike other countries, getting on the property ladder just to get on generally isn't a good idea here, as getting out again has high costs. I'd advise to wait until you have found *the* place. Or at least, wait until you have found a place you can see yourself happy in for the next 10 years or so.

Mushiness aside...

I have a very conservative approach to finance when the roof over my head is at stake. For a primary residence, I err on the side of caution, staying within the range of what I could comfortably keep up with assuming a 'worst case' scenario. Of course, I take out a mortgage - it's silly not to given the low rates and tax advantages. But stretching to the very limit of one's means - or heaven forbid beyond one's means - is more risk than I am willing to take on with in a primary residence. Especially in today's uncertain economic climate, weighed against a housing bubble.

Now, many people would disagree with my approach. But I look at what has happened in the US, where people stretched themselves a bit too thin to buy their homes, because 'Hey! Safe As Houses!" - then lost their jobs, with no recovery in sight, and are now facing losing those homes. Whether a similar economic downturn/ property market crash could happen here is debatable, but it's a cautionary tale that one shouldn't ignore. If you do buy, I'd counsel being sensible with your financing.

'Sensible' is a term that is subject to individual interpretation, of course.

All the best...

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Old 04.01.2012, 22:57
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Re: Thinking about buying. Good/bad idea with a housing bubble?

[QUOTE=diamondscan;1448644]Is it really so hard to get rid of tenants if you want to occupy your own building?

Yes if the tenants complain to ASLOCA it can slow down the process considerably. 2-3 years is not unheard of.

However it MAY be possible to circumvent this through a fix-term tenancy agreement (e.g one year renewable for one year, with a 3-month notice period). This is becoming increasingly common in "hot" areas like Geneva and you should be able to find tenants willing to sign such contracts quite easily.
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Old 04.01.2012, 23:08
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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Although it's a risk, it's a low risk. There are relatively few incidents of tenants digging their heels in.
Out of all of the properties we have owned and rented out to tenants we have never once had an incident. Their deposit is normally not needed because the place is spotless when they move out and they have no problem with a 3 month notice once you tell them the house has been sold. Those are my experiences in Zug, Zurich and Aargua. Perhaps its not the same all over?
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Old 04.01.2012, 23:14
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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Out of all of the properties we have owned and rented out to tenants we have never once had an incident. Their deposit is normally not needed because the place is spotless when they move out and they have no problem with a 3 month notice once you tell them the house has been sold. Those are my experiences in Zug, Zurich and Aargua. Perhaps its not the same all over?
moreover, i wouldn't care about them not moving out - after all, they'd be paying off the mortgage for me!
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Old 04.01.2012, 23:17
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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Out of all of the properties we have owned and rented out to tenants we have never once had an incident. Their deposit is normally not needed because the place is spotless when they move out and they have no problem with a 3 month notice once you tell them the house has been sold. Those are my experiences in Zug, Zurich and Aargua. Perhaps its not the same all over?
Yes I would say bad tenants are usually not a problem, but getting rid of them (if needed) can be, in particular in Geneva and Lausanne areas where Asloca is powerful.
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Old 05.01.2012, 09:19
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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If you are married to a Swiss citizen than there are no limits on where you live and for how long. Either you live IN Switzerland for 5 years and are married for 3 years, or if you don't live in Switzerland then you have to be married 6 years. You are going through Facilitated naturalization which is federal and have nothing to do with the cantons/communes.
Ahh, this bit of info is really helpful! I have heard about the city/Kanton switch being an issue for foreigners born in Switzerland or EU who must remain in the same town for 5 years before applying for naturalisation, but I knew their process is different than people married to Swiss. Hoorah. That means I am pretty close!

I am keen to buy, but the idea of mortgage rates shooting up scares me a bit. Of course any investment is a risk and we'd have to do a lot more research before we decide to make any commitments. The 10-year fixed mortgages are looking more and more attractive…

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Switzerland is not a mobile property market in the way that the US is. The American idea of a starter home, then five years later moving up the property ladder, up again and again and again, until you downsize in retirement is not really the done thing here. Many people will buy one home in their lifetimes, plan that they will only move our of their home feet first. With this in mind, that 'home is where the heart is' becomes even more important. Have you found a place that has captured your heart?
I agree that the "buy a new house and move every 2-5 years" approach in the States is a poor one. If we would buy, it would have to be a property we love that "feels like home" and that we would be happy in for at least 10-15 years. It is possible though that I have a "buy and upgrade later" mentality from growing up in the States. Interesting point to think about…

However, if we would not buy, I would have to seriously think about trying to find a cheaper place to rent for sustainability. We save an adequate amount of money per year at the moment, but figuring in possible school costs for my husband and the possibility of child expenses for either daycare or living on a single income, it might not leave that much left for a house fund. It's OK as DINCs, but when kids enter the picture, 3k rent doesn't seem feasible. And I would like to save for retirement as well so we can stay in one house forever.

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However it MAY be possible to circumvent this through a fix-term tenancy agreement (e.g one year renewable for one year, with a 3-month notice period).
I'm sure if we would think of renting, we'd research the hell out of tenant agreements. If we would leave for a year or two, we'd probably only offer the flat as a temporary flat. And we would probably see if there were any family (brother) or friends that would be interested in using the flat before we put it on the market.
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Old 05.01.2012, 09:46
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Re: Thinking about buying. Good/bad idea with a housing bubble?

Ok another thread about housing...

All it boils down to is whether you believe the prices are gonna go up, down or stay the same.

If you can answer that simple question then you have your answer, everyone else will just give you their version of the story and what they believe will happen. It's likely that 66% of them will be wrong. Given your circumstances (Your OH not wanting to buy and uncertainties if you will need to travel etc), I would follow a wait and see strategy, and pounce on any bargains, in the meantime you could perhaps see if you can reduce your rent by finding an alternative property with lower rent.
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Old 05.01.2012, 09:56
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Re: Thinking about buying. Good/bad idea with a housing bubble?

I wouldn't be paying 3k on rent. In my personal opinion, if I could find a place that I liked (and met all the "this is a good investment criteria") at 350-400k, I'd buy it.

As for the mortgage rates "shooting up", most people have a tiered mortgage and this is what will be proposed to you. 10% - 6 month, 30% - 5 year fixed and 55% - 10 year fixed or any number of combinations like that. The only problem in getting a 10 year fixed is that you have huge penalties if you sell and don't either take the mortgage to another property or have the new buyer take over the mortgage.
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Old 05.01.2012, 10:11
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Re: Thinking about buying. Good/bad idea with a housing bubble?

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The only problem in getting a 10 year fixed is that you have huge penalties if you sell and don't either take the mortgage to another property or have the new buyer take over the mortgage.
You mean you have huge penalties if you sell early or if you sell after 10 years? We would not take a 10-year fix if we didn't intend on keeping the property that whole time or longer.
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