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  #21  
Old 13.03.2015, 08:53
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Re: housing prices... where are they going?

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Let's carefully re-read post N°7.....

Well yes.... and? Depends why you buy. Mind you, those houses which were very reasonably priced in the Val-de-Ruz even 10 years ago, have gone up hugely. It's a lovely area albeit unknown to expats, with quick connection to Neuchâtel. Same for parts of the Neuch riviera, especially towards Bern. Not everyone wants to live in crowded areas, and full of expats

Very popular locations are now the ones in that 'bubble' and at risk, other less popular/well-known locations are not, and prices still going up, but more slowly. Location, location, location does not remain static- those who know how to study the mutation are the winners (not us, be bought for entirely different reasons). As said, does not apply to me or my choice. We are just sking (with one 'i'- spending our kids' inheritance- with their blessing).

Youd think that the most expensive blocks of flats with the most expensive rents, would give you the best return as an investor. But again, you would be totally wrong. Investors are buying in low price areas, and getting quite a bit more % return. I have several friends who have a large investment propety portfolio, and they have demonstrated this clearly.

Last edited by Odile; 14.03.2015 at 17:55.
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Old 13.03.2015, 09:26
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Re: housing prices... where are they going?

Did the banker say anything about you being American (I assumed because you have a house in Detroit)? A friend went to get a mortgage with UBS for a home in Vaud and they told her that since she was American and the house was valued over 2.5 million francs they would need at least 45% down payment instead of the usual 20%. Not sure if it was just because of the high value of the home, but she understood it was actually because of her nationality and the value. Does anybody else have any more info on this or any experiences?
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Old 13.03.2015, 10:22
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Re: housing prices... where are they going?

Hi, I'm American and have a mort. with UBS. I received no such request in for the house in Kanton Aargau. 20% down.

Regarding housing prices depends on area. We were looking in the more suburban areas of Zurich especially around Dietikon - just at the border of Kanton Aargau (Sprietenbach, Regensdorf, etc.). For houses build 10 to 12 years ago (attached, semi attached or detached but sharing same underground garage) we found that the prices had not increased in terms of actual buying value. This is differentiated from what the selling owners ask!!!

For example, 1.5 years ago. we found a house (detached) in Sprietenbach built about 12 years ago advertised for 1.1 million. We watched and after about 6 months the house was still on the market (wonderful house actually, small but really nice everything top-level, high technology). The the owner dropped to one. we went in with a 950 offer. The owner refused - reason being is that we were told he paid 930, 12 years ago so he'd only see a 20K return. We walked away - we heard he sold it for 970. By Long Island, NY standards, a pity full return - my parents saw over 50% return after 12 years.

Our current house, same issue. The owner was smoking weed or freebasing cocaine or was born cognitively impaired. Maybe they had a genetic disorder. They paid 800 K 12 years ago (same area). Was asking 1.1 million! 1.5 years ago. Ok maybe the owner was dropped on the head as a child. The house was on the market for 6 months - they wanted to leave CH and they accepted our offer of 850. So she got a measley 50K CHF after 12 years - that's a Return of Investment for Losers if you consider the amount of money they spent on individualing the house during construction (they had fire places installed as an example of they did) - we have all the records of their spends when they ordered the house on top of basic purchase price. So by my calculation - they lost anyways.

We gave that offer that we would do minimal on the house, the house is actually fantastic as it is - I mean they did a great job on it - so we have no expectation of a ROI..rather our benefit comes from monthly savings contrast renting. Monthly payments are very low (much lower than a house of this price in the US) with cost of living energy etc. etc. being much lower than our Canton du Vaud rents. Consistent with our prior rents in a Zurich suburb - but with a house instead of apartment.

So my point, is depending on the area I don't see others seeing much ROI - I dont' think CH is a place to play the real-estate game as we do in the U.S. In part due to system here.

Good luck hope my experience is relevant to you. But I would by a house here with expectation of ROI. Other reasons drove our decision to buy a house.
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Old 13.03.2015, 19:44
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Re: housing prices... where are they going?

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rather our benefit comes from monthly savings contrast renting. Monthly payments are very low

I see this sentiment bandy around a lot espically with the currently low interests rates but with my back of a fag box calculations its seems a very risky strategy. Maybe my sums are wrong.

House/Apparment cost = 1 mill
Interest per year at 2% = 20 k per an.
Repairs maintenance 1% = 10 k per an.
Amortization min 1 % = 10k per an.

Your looking at 40 k per year .. that is a decent rent.
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Old 13.03.2015, 19:50
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Re: housing prices... where are they going?

Keep working on your back of fag packet calculations.
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Old 13.03.2015, 22:20
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Re: housing prices... where are they going?

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So my point, is depending on the area I don't see others seeing much ROI - I dont' think CH is a place to play the real-estate game as we do in the U.S. In part due to system here.

Good luck hope my experience is relevant to you. But I would by a house here with expectation of ROI. Other reasons drove our decision to buy a house.
To give an example:

We live in a Quartier in Ausserschwyz, one of the bubble areas. The houses were built 25 years ago, all of similar design and size.

One house was sold at the height of the bubble for well over twice the original price. Now the two that I mentioned in my earlier post, essentially the same houses, are listed at or lower than the price 25 years ago. That's how much the market here has changed in a short time. The bubble has burst.

Part of the reason that homes are not increasing in value in our Quartier, as in many neighborhoods, is that we are governed by a Gestaltungsplan that is iron-clad. Well, folks don't live the way they did 25 years ago, what was built back then is no longer attractive to buyers today. If one were able to update, to add on a (architecturally appropriate) addition, the properties would have continued to grow in value on the land price alone. But because that is impossible, outside of the recent bubble anomaly, properties 'frozen in time' like ours really do not have any room for appreciation.

(A Gestaltungsplan can be a godsend to guard against 'concrete-box-itis. But some eras don't necessarily merit that protection.)

In the same area, though, an old run down wreck that can actually be torn down will go for 2 million plus, because building a 5-10 million villa (or a multiple family development for that sum) is still possible on that land.

The Swiss property market generally does not consider ROI, as most homeowners do not expect to leave until called by the grim reaper. But folks who do not plan to stay in Switzerland forever (or even those who do, but do not have an intrinsic right to) stay) and so must consider resale value... Tread carefully.

On the other hand, while we might not see any profit from the house, the mortgage is only pennies where renting a similar property would be eye-wateringly expensive. That is where the value in home ownership lies. At least for us. As always, YMMV.
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  #27  
Old 13.03.2015, 23:48
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Re: housing prices... where are they going?

I think the market for flats will take a rather hard landing.
Here in my little village on the other side of Üetliberg, several flats are for sale, have been for months or longer (they're not all completely built, yet).

And there are still more being planned.

Houses do sell, if they are priced right (there was a "design"-house from the early sixties up for sale for a couple of days and it sold (disappeared from comparis) very quickly - probably simply because it had so much land).
OTOH, there's been another house (a mid-terrace house) for sale for months with a much smaller plot of land, more expensive and with the prospect of having to pay a share for the renewal of the shared heating system in 2016.
I've not asked my bank for a valuation, but I suspect it would sell much quicker if the owner shed another 5-10% off the price (it was lowered a rather symbolic 20k (~2.something %) a couple of weeks ago).
Location is rather nice, though and the view is good (and virtually unobstructable).
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Old 14.03.2015, 07:47
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Re: housing prices... where are they going?

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I see this sentiment bandy around a lot espically with the currently low interests rates but with my back of a fag box calculations its seems a very risky strategy. Maybe my sums are wrong.

House/Apparment cost = 1 mill
Interest per year at 2% = 20 k per an.
Repairs maintenance 1% = 10 k per an.
Amortization min 1 % = 10k per an.

Your looking at 40 k per year .. that is a decent rent.
These calculations seem to be off somewhat.

Let's take your scenario:

Home price: 1,000,000.00
Downpayment (20%): 200,000.00

Fixed 10Y Mortgage: 1.2%
(let's assume it is the same for Hypothek 1 and Hypothek 2)

Hypothek 1: 680,000.00

Hypothek 2: 120,000.00
(That's the amortizing hypothek, that must be paid back in 15 years)

Monthly home costs: 600.00
(let's assume that they include nebenkosten + some repairs)

Equivalent rent: 2,500.00
(let's assume the similar place would/is costing you ~2,500.00 per month, including expenses)

Assume in 10 years, you sell your home for the same price you bought it, that is 1,000,000.00.

How will the numbers look?
(note that I did not include eigenmietwert tax in the calc, assuming it more or less cancels out by interest payments)

Monthly mortgage payment: 1,077.00
Monthly payment incl. costs: 1,677.00
Total cost per year: 20,200.00 (NOTE: that is half of our 40k)
Total payment in 10Y: 250,000.00 (rounded)

Outstanding mortgage balance in 10Y: 765,000.00 (rounded)

Total rent equivalent: 300,000.00

Profit on House Sale: 90,000.00 (rounded)

So the bottom line is that you made almost 100,000.00 profit.

How?

1,000,000
+ 50,000 (savings from rent)
-200,000 (downpayment)
-770,000 (loan balance)
= ~100,000 profit.

That's just one of the scenarios looking into the future (ie. house price is the same in 10 years).

If, of course, the house price drops, there could be zero or even loss. If it increases, even more profit.

Hope that helps.
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Old 14.03.2015, 11:50
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Re: housing prices... where are they going?

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These calculations seem to be off somewhat.

So the bottom line is that you made almost 100,000.00 profit.

How?
1,000,000
+ 50,000 (savings from rent)
-200,000 (downpayment)
-770,000 (loan balance) .
= ~100,000 profit.
Thanks for the Calculation. My calculations been on the pessimistic side. Your seem fairly optimistic. But lets say your Right and assuming 1.2% on 80% mortgages is available

Your exposure at the end of 10 year is huge to both interest rates and to Property market. Add to that the possibility to any major repairs to the home .. it still looks Risky IMHO...
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Old 14.03.2015, 12:05
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Re: housing prices... where are they going?

You forget the fact that after you pay it off you live in it rent-free forever if you want.

With renting you will always pay, even when your income will diminish siginificantly after you retire.

So for the duration of the mortgage, let's say 15-20 years it might be the same or who knows, maybe a bit worse than renting. But for the next 10-20 years after that it clearly is a huge benefit to own your house in your golden years.

I only see advantages in home ownership, provided you buy on a sensible price and a desirable location and intend to hold for decades and not expect a quick buck in 4-5 years.
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Old 14.03.2015, 12:13
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Re: housing prices... where are they going?

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You forget the fact that after you pay it off you live in it rent-free forever if you want.

With renting you will always pay, even when your income will diminish siginificantly after you retire.

So for the duration of the mortgage, let's say 15-20 years it might be the same or who knows, maybe a bit worse than renting. But for the next 10-20 years after that it clearly is a huge benefit to own your house in your golden years.

I only see advantages in home ownership, provided you buy on a sensible price and a desirable location and intend to hold for decades and not expect a quick buck in 4-5 years.
This is the uk model not swiss. You wouldn't normally pay off your home here.
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Old 14.03.2015, 12:17
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Re: housing prices... where are they going?

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Thanks for the Calculation. My calculations been on the pessimistic side. Your seem fairly optimistic. But lets say your Right and assuming 1.2% on 80% mortgages is available

Your exposure at the end of 10 year is huge to both interest rates and to Property market. Add to that the possibility to any major repairs to the home .. it still looks Risky IMHO...
You are also risking huge gains against renting if interest rates stay low and house prices continue to rise. So there's a risk you could make a lot more too.

If you rent, your money goes to the landlord. No risk, it's clear.

Anyway for most people owning their house isn't about its price change, it's about having your own home.
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Old 14.03.2015, 12:50
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Re: housing prices... where are they going?

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You are also risking huge gains against renting if interest rates stay low and house prices continue to rise. So there's a risk you could make a lot more too.

If you rent, your money goes to the landlord. No risk, it's clear.

Anyway for most people owning their house isn't about its price change, it's about having your own home.
Your landlord can increase rents when interest rates go up, so that risk when you buy your own place is also there when you rent.
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Old 14.03.2015, 12:53
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Re: housing prices... where are they going?

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This is the uk model not swiss. You wouldn't normally pay off your home here.
I know many retirees who have chosen to do so- they pay more tax, but are free of debts and can at last 'relax' and enjoy- and will spend money on maintenance and improvements to reduce tax 'burden'. Being mortgage free is such a fabulous feeling after a lifetime of being in debt.

Last edited by Odile; 14.03.2015 at 17:55.
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Old 14.03.2015, 13:23
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Re: housing prices... where are they going?

I made a slight mistake in my previous calculations, and to correct myself I have calculated a longer term, 20 year, optimistic-pessimistic scenario. Optimistic for the first 10 years (fixed rate 1.2% which is representative of today), and Pessimistic for the next 10 years (fixed rate 4.0% which is 1% short of the 5% bank stress scenario).

Home price: 1,000,000
Downpayment: 200,000
Hypothek 1: 680,000 (interest only part)
Hypothek 2: 120,000 (to be amortized in 15 years)
Rate (0-10y): 1.2%
Rate (10-20y): 4%
Monthly expenses: 600
Equivalent rent: 2,500 (for "comparison" vs. home ownership)

As before, ignoring the impact of taxes, as assuming eigenmietwert is more or less offset by interest payment.

In years 0y - 10y
-----------------
Mortgage payment: 1,410
Total payment (with nebenkosten): 2,010

In years 10y-15y
---------------
Morgage payment: 3,060
Total payment (with nebenkosten): 3,610

At the end of year 15, the balance of the morgage is 680,000 (i.e. Hypothek 2 is fully paid).

From year 15 to year 20:
------------------------
Mortgage payment: 2,270 (which is interest only on balance of Hyp 1)
Total payment: 2,870

If at the end of year 20 the home is sold for the same price (1,000,000), the P/L is:

1,000,000
- 200,000 (downpayment)
- 680,000 (hypothek1 balance)
- (600,000 [rent] - 642,000 [mortgage payments rounded])
~= 80,000

Overall, a small profit, albight very risky indeed (could go either way depending on interest rates and house value in 20 years).
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Old 14.03.2015, 14:22
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Re: housing prices... where are they going?

i would add in some complexity...

if one adds in the notary and hypothek charges which can be around 25000...
for 20 years, assuming one can get a ROI of 1% p.a., 225000 can become around 275000... certainly that should be considered...

this can make the assumed profit a little less attractive...
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Old 14.03.2015, 15:09
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Re: housing prices... where are they going?

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Home price: 1,000,000
Equivalent rent: 2,500 (for "comparison" vs. home ownership)
If you pay 1m for a place that rents for 2.5k, then you have more money than sense.

fine if you are buying a place to live in and don't care what it costs. but if you want to make money from it, you will need one heck of an economic tailwind to make that work for you.
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Old 14.03.2015, 15:16
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Re: housing prices... where are they going?

There's even more complexity, because:
- interest rates are so low, the interest doesn't come close to the Eigenmietwert in most cases (unless you earn a lot and have a lot more money than the 20% downpayment, so the bank could allow you to leverage to the theoretical maximum)
- money not paid for rent should be invested, as to be able to lower the mortgage when it runs out, in case the interest rates have increased to a level where paying them becomes a burden (which is not difficult, given an 80% financing in the above calculations)
- but because interest rates are more or less zero for most non-risky investments, that is easier said than done
- if your 2nd-pillar is under financed, one could pay additional money in there (which can be subtracted from the taxable income, to some point)
- or you could take money out of it (subject to tax) to lower the mortgage and then pay it back to lower taxes
- 3rd-pillar contributions should be max-ed out for you and your partner every year
- if you can't afford and max-out a 3rd-pillar for you and your partner, there's a problem somewhere in your calculation


Right now, from the calculator of ZKB, to get an 800000 mortgage you would need a yearly net income of 160k.
Not unreasonable, but also not too representative of even the EF-population (myself included - I don't make 160k net, thank you)
If you have a partner and two or three kids, your (or your partner) probably can't have a job that pays 40k net part-time. At least, it's realistic to assume that.
So, who ever earns most continues to work and the other stays at home.

All these back-of-the-envelope (if you smoke, you should give up that, too - saves tens of thousands over a decade) calculations also assume you never lose your job, never total your car in way that your insurance doesn't pay.
In fact, you should create a fund specifically for financing your current and your next car so that you don't have to take out a loan next time you need to buy a new one.

It would be reasonable to create a slightly higher house-maintenance fund because you have to finance all the repairs yourself (washing-machine, dish-washer, kitchen, the dreaded roof, painting, cleaning the ventilation-system (if the house is minergie), lawn-mower etc.pp.)
AFAIK, deprecation of flats is actually worse than that of a house.
Should be taken into consideration when a potential resale-value is calculated.

But mortgage rates are at an absolute, historical low. So whatever you pay in interest usually doesn't come close to rent (unless you currently live in a flat-share or your mothers basement...).
So, it might still make sense to buy, if the price isn't unreasonable.
Usually, your bank should be able to tell you if the valuation for the house of the seller is actually realistic.
And maybe somebody who paid vermoegenszentrum.ch can tell if their advice is worth the money. I'm thinking of enlisting their help, if I ever get to buy something.

As for not paying off mortgages: I think that wasn't a bad idea per-se, historically, when you could actually get a decent return on your savings without significant risk.
Also, if you had bought at the right time and emptied your 2nd-pillar for it, valuation-increase, income-increase and appreciation made owning a house and selling it after 20-ish years a very good investment.
As of now, my perception is that it's currently not realistic to assume a repeat of that scenario in 10 to 20 years and take it as a "given" when doing your financing calculations....
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Old 14.03.2015, 15:35
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Re: housing prices... where are they going?

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If you pay 1m for a place that rents for 2.5k, then you have more money than sense.
A 1M house in my area will cost you 4K to rent.
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Old 14.03.2015, 16:30
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Re: housing prices... where are they going?

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If you pay 1m for a place that rents for 2.5k, then you have more money than sense.

fine if you are buying a place to live in and don't care what it costs. but if you want to make money from it, you will need one heck of an economic tailwind to make that work for you.
In the area where I live the ratio sale price vs. rent seems to be, give or take the standard error, 900 - 1 mln vs. ~2,500

I don't get it as well, but some even manage to sell.
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