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  #61  
Old 06.02.2017, 21:31
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Re: Mortgage in Switzerland

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Housing is a leveraged investment. If you put down 20%, and the value decreases 10% then you have lost half.
.......
My point is simply that one's focus in buying a house should be less about investment, and more about the lifestyle you intend to have over the next 10 years as you live there.
1) Any leveraged investment has the potential for a larger up or downside. If you have greater confidence in the upside then you leverage

2) Property is a long term hedge against inflation. Of course in Switzerland inflation is low so the hedge is of reduced value. Mid to long term is the only way to view the market here - for a place to live in
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  #62  
Old 06.02.2017, 21:36
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Re: Mortgage in Switzerland

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Housing is a leveraged investment. If you put down 20%, and the value decreases 10% then you have lost half.

The stock market is (for most of us) not a leveraged investment. So a 10% decrease, is only a 10% loss.

Housing is very illiquid, and has very high transaction costs, whereas equities are very liquid and easy to sell quickly. And historically, the stock market has FAR outperformed residential housing as an asset class.

My point is simply that one's focus in buying a house should be less about investment, and more about the lifestyle you intend to have over the next 10 years as you live there.
But potential losses are partially offset by savings on rent. Saving 15-20 Kpa will offset 10% loss in 5 years. Or not?
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  #63  
Old 06.02.2017, 21:46
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Re: Mortgage in Switzerland

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But potential losses are partially offset by savings on rent. Saving 15-20 Kpa will offset 10% loss in 5 years. Or not?
Buy: house prices have risen over time, low interest rates, savings in rent over mortgage (I pay 1k mortgage on a house that would have cost 4-5k to rent per month), renovation can be offset against tax, financial situation can be set for medium term (15 year fix possible), outlook for housing is flat but not predicted to crash, it's your house - if you rake the wood floor with a knife, well so what it's your floor, interest rates do no look to be going high soon in CH.

Rent: avoid house price crash if it happens, avoid financial ruin if rates rise or prices tumble and bank asks you to cover shortfall, your investment may out perform the housing market and likewise your investment may return greater than the savings in rent and renovation tax savings, you can move relatively easily if your circumstances change, you are not leveraging more than your own money in stocks usually.
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  #64  
Old 07.02.2017, 13:05
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Re: Mortgage in Switzerland

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But potential losses are partially offset by savings on rent. Saving 15-20 Kpa will offset 10% loss in 5 years. Or not?
Conceptually, not really.

The money one saves in rent is offset by the costs of:
-mortgage interest
-acquisition/sale costs
-maintenance costs
-annual property taxes (depends on the jurisdication)

I say "conceptually", because in it depends on the figures. So in some cases, yes it is cheaper. It depends on the housing market, and the tax structure.

In the case of Zurich canton, then yes I think it is cheaper to own than to rent. For myself, I would probably save 30-50% off my rent costs. But I personally am not ready to commit to single location for the next 5-10 years. So I pay the higher cost of rent, to maintain my flexibility.

bb
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  #65  
Old 07.02.2017, 13:39
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Re: Mortgage in Switzerland

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Housing is very illiquid, and has very high transaction costs
Depends on location. In ZH you can buy a house paying in total just 0.1% to the notary for the transaction

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And historically, the stock market has FAR outperformed residential housing as an asset class.
Not so sure about that. Let's actually compare.

Swiss rental property total returns - last graph on http://www.iazicifi.ch/produkt/swx-iazi-indizes/ - 4.8% CAGR over 30 years.
S&P 500 total returns over 30 years - https://finance.yahoo.com/quote/%5ESP500TR?ltr=1 - 10.1% CAGR, but adjusting for USD inflation: 8.5% in CHF.

So stocks on average performed about 80% better annually. But property can be leveraged to much higher levels - 3-5x, which greatly amplifies your returns in current low rate environment. Simplistically, if you could borrow at 0.7%, with 35% downpayment, 4.8% return becomes (4.8-0.7)*3 = 12.3%, and with 20% and 1% amortization, it's even (4.8-0.7-1)*5 = 15.5%. Of course this assumes that rates will stay low. Should they rise to the historical maximums the bubble will likely burst pretty quickly.
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  #66  
Old 07.02.2017, 14:44
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Re: Mortgage in Switzerland

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But I personally am not ready to commit to single location for the next 5-10 years. So I pay the higher cost of rent, to maintain my flexibility.

bb
I think in worst case one would liquidate the property with loses equal to rent paid(i.e. money burnt) on behalf of the owner. Also people living in their own property tend to work more thoroughly, behave grounded and life bits sort of stick to them.
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  #67  
Old 07.02.2017, 14:57
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Re: Mortgage in Switzerland

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I think in worst case one would liquidate the property with loses equal to rent paid(i.e. money burnt) on behalf of the owner. .
Nope. When buying as a private person, your liability is unlimited. In the worst case the bank can take everything you have in Switzerland, including all your future earnings/salary above the bare existential minimum, until the debt is fully paid. It's quite unlikely to come to that however, in light of today's strict lending requirements.

It's possible to limit liability by buying as a company though. But that makes things a lot more complicated with taxation and is not for the light hearted
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  #68  
Old 07.02.2017, 15:02
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Re: Mortgage in Switzerland

that is a really bad scenario not saying it cant happen though, I meant if the property won't be sold with a gain but some loss, even equall to a virtual rent that would have taken place, still owning is a worthy experience. At least in Belgium, not sure how things work in CH.
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  #69  
Old 07.02.2017, 15:05
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Re: Mortgage in Switzerland

I think most European countries are like that - if house prices drop, the bank can take the house AND you still owe them the money without any limit. You owe until the debt is paid off or you go bankrupt, but there's effectively no personal bankruptcy in Switzerland. It's just the US where the system is different and they have non recourse mortgage loans: if bank decides to take the house that's the end of the story

Last edited by ivank; 07.02.2017 at 15:42.
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  #70  
Old 07.02.2017, 16:10
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Re: Mortgage in Switzerland

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Swiss rental property total returns - last graph on http://www.iazicifi.ch/produkt/swx-iazi-indizes/ - 4.8% CAGR over 30 years.
You fail to point out that for 15 of those 30 years you would have made a loss, property being a geared investment this would have not been ideal as Banks made cash calls during those years. I suspect the property holding period of someone buying in CH to be 10-15 rather than 30 years.
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I think most European countries are like that - if house prices drop, the bank can take the house AND you still owe them the money without any limit. You owe until the debt is paid off or you go bankrupt, but there's effectively no personal bankruptcy in Switzerland. It's just the US where the system is different and they have non recourse mortgage loans: if bank decides to take the house that's the end of the story
In the UK there are no cash calls on owner occupied house mortgages. If the bank repossessed because you FAIL TO PAY, the monthly payments, they can come after you for any loss.
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  #71  
Old 07.02.2017, 17:02
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Re: Mortgage in Switzerland

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You fail to point out that for 15 of those 30 years you would have made a loss,
On the total returns graph it's not really such a big loss, but looks like a mostly flat period where house price losses were offset to a large degree by the rental income (rent savings if you'd live in the property yourself).

It's accounted for in CAGR over whole 30y period. CAGR after the end of the 90's bubble, over last 15 years, is about 6-7% and not so far behind the stocks
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  #72  
Old 07.02.2017, 17:32
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Re: Mortgage in Switzerland

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On the total returns graph it's not really such a big loss, but looks like a mostly flat period where house price losses were offset to a large degree by the rental income (rent savings if you'd live in the property yourself).

It's accounted for in CAGR over whole 30y period. CAGR after the end of the 90's bubble, over last 15 years, is about 6-7% and not so far behind the stocks
However 3.7% under performance over 30 years is huge, I assume you understand the effects of compound interest. The shares would be worth 2.97 times the value of the house, or 2 free houses over 30 years.
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  #73  
Old 07.02.2017, 18:12
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Re: Mortgage in Switzerland

Those returns are without using leverage in the form of mortgage. If you take advantage of today's all time low rates and make a bet they stay low, you'd beat the stock market returns. Just don't overdo it, and diversify with stocks too, to keep the risk reasonable.
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Old 07.02.2017, 18:39
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Re: Mortgage in Switzerland

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Those returns are without using leverage in the form of mortgage. If you take advantage of today's all time low rates and make a bet they stay low, you'd beat the stock market returns. Just don't overdo it, and diversify with stocks too, to keep the risk reasonable.
you can guarantee they stay low for a certain period by fixing for, say, 10 or 15, years.
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Old 07.02.2017, 18:53
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Re: Mortgage in Switzerland

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Those returns are without using leverage in the form of mortgage. If you take advantage of today's all time low rates and make a bet they stay low, you'd beat the stock market returns. Just don't overdo it, and diversify with stocks too, to keep the risk reasonable.
You can't compare a highly leveraged position with an un leveraged position, thats absurd .
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  #76  
Old 07.02.2017, 18:59
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Re: Mortgage in Switzerland

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You can't compare a highly leveraged position with an un leveraged position, thats absurd .
Sure you can - to compare how much return you can get on your own cash.

You can't get nowhere even near the same kind of leverage with stocks (not counting the immensely risky synthetic triple leveraged ETFs). Brokers I know would loan maybe just 50% at best of your long positions, and at higher rates than mortgages.
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Old 07.02.2017, 19:57
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Re: Mortgage in Switzerland

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Depends on location. In ZH you can buy a house paying in total just 0.1% to the notary for the transaction
Real estate agent costs? Typically 5 %.
Assorted other moving costs, etc.

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Not so sure about that. Let's actually compare.

Swiss rental property total returns - last graph on http://www.iazicifi.ch/produkt/swx-iazi-indizes/ - 4.8% CAGR over 30 years.
S&P 500 total returns over 30 years - https://finance.yahoo.com/quote/%5ESP500TR?ltr=1 - 10.1% CAGR, but adjusting for USD inflation: 8.5% in CHF.

So stocks on average performed about 80% better annually. But property can be leveraged to much higher levels - 3-5x, which greatly amplifies your returns in current low rate environment. Simplistically, if you could borrow at 0.7%, with 35% downpayment, 4.8% return becomes (4.8-0.7)*3 = 12.3%, and with 20% and 1% amortization, it's even (4.8-0.7-1)*5 = 15.5%. Of course this assumes that rates will stay low. Should they rise to the historical maximums the bubble will likely burst pretty quickly.
1. The past 30 years is the most advantageous comparison period for RE. Do the same comparison over the past 50 or 100 years, and it would show the S&P with the same return, and RE only 1 or 2 % above inflation.

2. Consider why it is that banks/insurance companies/billionaires only hold a small portion of their assets in RE.

3. It looks like the you are comparing the Swiss RE before inflation, with the S&P net of inflation? I think a more accurate comparison would be the equities and RE from the same market (both Swiss or both US) and both on the same pre/post inflation basis.

4. If the comparison relies upon leveraging only one of the two asset classes (without regard for the higher volatility), then I'm not sure it is a valid comparison.

Regards
bb
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  #78  
Old 07.02.2017, 20:23
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Re: Mortgage in Switzerland

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Real estate agent costs? Typically 5 %.
Assorted other moving costs, etc.
Nobody is forced to use them, notary does most of the job anyway. If seller needs an agent, in Switzerland it's his problem how to pay him, not mine.

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1. The past 30 years is the most advantageous comparison period for RE. Do the same comparison over the past 50 or 100 years, and it would show the S&P with the same return, and RE only 1 or 2 % above inflation.
30 years is the longest I've found with some quick google searches. If you can find stats for a longer period, I'm all ears. But total returns, please, not just price indexes. For real estate, capital gains and rental income both are very significant sources of returns.

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2. Consider why it is that banks/insurance companies/billionaires only hold a small portion of their assets in RE.
Hello, how do you think the current president of the US made his fortune? Plenty of billionaires came from real estate.

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4. If the comparison relies upon leveraging only one of the two asset classes (without regard for the higher volatility), then I'm not sure it is a valid comparison.
RE is naturally and commonly leveraged to a high degree. Stocks usually aren't, and can't be to the same degree without significant additional risk and costs. So I think the comparison using the typical leverage level for each is ok.
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  #79  
Old 07.02.2017, 20:34
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Re: Mortgage in Switzerland

Guess i'm lucky, got houses and cash so best of both worlds !

Houses/real estate are probably good for people who like security and low risk, people who like to take a higher risk go for Fundsmith or the suchlike.

Horses for Courses reaslly
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Old 07.02.2017, 20:40
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Re: Mortgage in Switzerland

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Hello, how do you think the current president of the US made his fortune? Plenty of billionaires came from real estate.
.
You are showing your ignorance, had he invested his inheritance in the S&P he would have 3 times the wealth he has today Trump has a very poor track record on his own account.
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