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Old 23.10.2016, 22:28
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Is Zurich experiencing a housing bubble?

Basically, are these high prices here to stay, or is this a bubble?

If it's a bubble, I wonder what will happen to all of these people with mortgages....
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Old 23.10.2016, 22:36
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Re: Is Zurich experiencing a housing bubble?

it is here to stay.
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Old 23.10.2016, 22:41
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Re: Is Zurich experiencing a housing bubble?

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If it's a bubble, I wonder what will happen to all of these people with mortgages....
Bubble or not, home owners with mortgages will end with a good positive balance on their homes after 30 or so years.

Renters on the other hand will pay off home owners their apartments and have nothing to show after 30 years.
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Old 23.10.2016, 22:49
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Re: Is Zurich experiencing a housing bubble?

This is one of the reasons why house buyers in Switzerland need to have a minimum of 20% deposit - often more nowadays.

I remember the crisis in the 80s in the UK, where house prices dropped and many of my colleagues had 110 or more % mortgages. Our own mortgage interest rate shot up to 19.5 %.
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Old 23.10.2016, 23:40
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Re: Is Zurich experiencing a housing bubble?

Hard to tell. On one hand the prices are constantly rising in the last 10 years or more so it feels like bubble. On the other there is a regulated pricing for the rent which keeps it artificially low.
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Old 23.10.2016, 23:54
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Re: Is Zurich experiencing a housing bubble?

Zurich City maybe in parts, yes.

Basel I think is worse.

As are parts of Central Switzerland.

What will happen to all the people with mortgages they can't afford ist not difficult to figure out: essentially what happened to the rest of the world in 2009. But that's true for everyone who buys things they couldn't afford in the first place.

The system here I think is quite solid due to the quite substantial down payment and the banks seem to be quite strict on that. A friend of mine who lives in Italy told me she just got a mortgage despite a down payment of only 5%. Would never happen here.
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Old 24.10.2016, 01:22
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Re: Is Zurich experiencing a housing bubble?

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Bubble or not, home owners with mortgages will end with a good positive balance on their homes after 30 or so years.

.
Depends on the location, and even in hot locations depends on the house.

We live in one of those hot areas. Gorgeous views of the lake and mountains, second lowest taxes in all of Switzerland. Bought the house 13 years ago for a reasonable price, poured some 40percent of the purchase price into renovating the house. But it remains a small normal house, built for the way normal folk live.

In the intervening years the price of build-able land and existing homes in this village have hit the stratosphere.

But... we will be lucky to sell the house for around what we paid for it all those years ago. No profit, if you count the cost of renovations, a loss.

What happened?

The area has changed from a sleepy farming community (which is what attracted us) to an expensive Zürich suburb. Newcomers are gazillionaires who want villas. Gazillionaires do not want normal houses built for the way normal folk live.

Homes on the scale of ours that can be razed and replaced with a villa sell for eye watering prices. But our Quartier has a Gestaltungsplan, our homes may not be changed, enlarged, or torn down and rebuilt. So of no interest to the gazillionaires.

Normal folk, the kind of families who would want a home like ours, rarely move into our village anymore.

So we have a white elephant, a home that no longer fits what buyers in this village want and thus will be hard to sell.

(No pity party here, though. The mortgage is pennies, we have saved a fortune over renting.)

So.... polish that crystal ball, and caveat emptor, caveat venditor.
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Old 24.10.2016, 07:55
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Re: Is Zurich experiencing a housing bubble?

It will be a while until Swiss people can't afford their mortgages.

The banks use 5% as the base mortgage rate to calculate if you can afford your requested mortgage, however the market rates are currently around 1% - https://www.swissquote.ch/sqw-static...geRates.action (ridiculously low)
If the 10 year mortgage rate is also still ridiculously low, then even banks (ie: professionals) don't expect the rate to go up soon.


The problem many people have though, is finding the first 200,000 to buy a house, when needing a 20% deposit.
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Old 24.10.2016, 10:29
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Re: Is Zurich experiencing a housing bubble?

when i talk to a couple of home owners who bought 10 years ago, they all quote prices that are almost the same as now. of course, i have not visited their houses. that makes me believe the prices were high even at that time and slowed a bit and picked up again. A clear trend that has emerged recently is the construction of apartments with less living area but still a high price. the high price is attributed to the location, closeness to schools, public transport etc. will the prices come down? i dont think so but there may not be continuious increase like the last few years. Most of the new apartments come with crappy meterial which in the end, you will upgrade to better quality and thus it costs more.


House ownership in Switzerland is costly and risky because some houses become white elephants over years and you can only profit from them by living out (not selling).


Reducing salaries and less immigration in the coming years may stop the price growth. we dont know yet how the 2014 vote to reduce immigration will be implemented. if immigration reduces dramatically, then it can have an immediate downward effect on prices.


prices must reflect the difference between demand and supply and at the moment, there is more supply than demand. sooner or later, the law of economics should hold true. i also believe that several new constructions are lying unoccupied but the builders are not willing to reduce the prices. it depends to see how long they can sit on their debt (taken to construct the apartments).


cheers
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Old 24.10.2016, 11:16
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Re: Is Zurich experiencing a housing bubble?

Some white elephants are amazing and adorable ... and give you things only white elephants can give you
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Old 24.10.2016, 11:43
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Re: Is Zurich experiencing a housing bubble?

Yes projected interest rates and fixed rates suggest long term low interest rates, so no shocks expected to the market in the short term...

But. A lot of vacant properties (new and recent builds) on the Gold Coast of Zurich suggest at the very least a bit of an oversupply. People are starting to drop prices (real estate agents have told me the Swiss are very slow to accept that they need to drop price to sell, and the interest rate pressure to do is low as well)

The starkest oversupply seems to be up in the mountain resort towns in GR

regarding commercial real estate, commentary I have read which makes sense is the risk of a bubble is potentially elevated because of very low interest rates mean that despite very low yields in real estate (<2.5%) they are an attractive place to park money. For now. but with a very high vacancy rate in Zurich, the vacancy rate could go up, and while prices havent dropped, it makes sense they would do so, perhaps starkly, when they go to sell in an non-liquid market (one with no buyers).

In summary, I think that in Zurich any purchase in the last 3 years has been "a the top of the market" and it will either stagnate now (optimistic), or go down 3-5% in the next 5 years, so its not a great investment, but if you own and have a long term view, the mortgage is cheap, and one day it might be worth more, but I wouldn't want to guess in how long.

Prudent lending has created stability, and you aren't seeing large amounts of plainly silly investments at prices that simply don't make sense.

Last edited by alemap; 24.10.2016 at 13:03. Reason: minor typos
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Old 24.10.2016, 11:55
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Re: Is Zurich experiencing a housing bubble?

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Bubble or not, home owners with mortgages will end with a good positive balance on their homes after 30 or so years.
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But... we will be lucky to sell the house for around what we paid for it all those years ago. No profit, if you count the cost of renovations, a loss.
I think the point is that after 30 years you will have paid much less in interest than you would have on rent and therefore already positive on the deal.


I know I am close to that point on interest alone after just 15 years. and not so far off break-even even after taking tax into account. Anything you can sell the house for is a bonus.
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Old 24.10.2016, 12:00
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Re: Is Zurich experiencing a housing bubble?

with prices high and interest rates low, it's basically a race to see how long low interest rates last.

with a decent yield and 20 years of low IR, you can get the property for 'free'.
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Old 24.10.2016, 12:04
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Re: Is Zurich experiencing a housing bubble?

High End London prices are off 25% over the last 18 months, thats in addition to a 20% fall in the value of the £. When prices are in a bubble they fall a long long way. London prices are currently about 12 times salaries, even if they fell to 6 times they would not be a bargain. In the 1990's property dip, London sold for less than 3 times salaries thats a drop of over 75% from todays prices.

A geared investment is always very dangerous with a 20% deposit your investing 500% of your money in a single asset. Don't put all your eggs in 1 basket is thought prudent although ignored by people buying a home.
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Old 24.10.2016, 12:24
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Re: Is Zurich experiencing a housing bubble?

When I arrived here in 1989 there were 6million people living in Switzerland. Today there are 8milion. That 2 million people who need to be housed. That's a 33% increase.

Of course all these 2 million are not buying, but the thrust to rented has forced up demand for property generally.

Having seen UK prices over the same period, I'm surprised Swiss prices aren't much higher...
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Old 24.10.2016, 12:34
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Re: Is Zurich experiencing a housing bubble?

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High End London prices are off 25% over the last 18 months, thats in addition to a 20% fall in the value of the £. When prices are in a bubble they fall a long long way. London prices are currently about 12 times salaries, even if they fell to 6 times they would not be a bargain. In the 1990's property dip, London sold for less than 3 times salaries thats a drop of over 75% from todays prices.

A geared investment is always very dangerous with a 20% deposit your investing 500% of your money in a single asset. Don't put all your eggs in 1 basket is thought prudent although ignored by people buying a home.
Erm, yes, but we all know that there are some key differences:
- The London property market actively sells to high net worth individuals around the globe. When I was living the Singapore were there TV ads with as-British-English-as-technically-possible voice overs recommending buying UK property... These rich Russians, Arabs, Africans and so on buy a london flat as an investment... not to live in it.
- a market with a lot of investment flats will always be way more volatile as one where people actually buy to live in themselves. This is both good and bad... on the one hand do you not have the volatile movements as much here... but on the other hand is selling property typically a much more complicated and time consuming matter than some expats thought...
- the business case of renting vs. buying simply adds up if you know you are going to stay somehwere for the long term. I personally don't know where I will live in 5 years, so then is it a totally different story...

P.S: I do not think Switzerland in general and Zurich in particular is a bubble. As long as incomes are as high as they are, tax as low as it is and the rental market as healthy as it is... is a property in a decent location a good long time investment. If you can only afford it as your ONLY investment is it probably not for you though...
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Old 24.10.2016, 12:37
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Re: Is Zurich experiencing a housing bubble?

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Having seen UK prices over the same period, I'm surprised Swiss prices aren't much higher...
Thats because there are not the same level of owner occupiers & banks have been less reckless requiring deposits of 20% v 5% currently in the UK. -10% deposit was available 10 years ago in the UK 10 years ago with self certification of earnings. If someone earning 25k can borrow 1 million house prices will rise......
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P.S: I do not think Switzerland in general and Zurich in particular is a bubble. As long as incomes are as high as they are, tax as low as it is and the rental market as healthy as it is... is a property in a decent location a good long time investment. If you can only afford it as your ONLY investment is it probably not for you though...
Prices have risen far faster than salaries in ZH, so yes that would sound like a bubble to me. If salaries are 15% higher than 15 years ago I would be surprised, I would expect them to be 5-7% higher than in 2001 on average.
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Old 24.10.2016, 12:43
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Re: Is Zurich experiencing a housing bubble?

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- the business case of renting vs. buying simply adds up if you know you are going to stay somehwere for the long term. I personally don't know where I will live in 5 years, so then is it a totally different story...
even that isn't an issue so long as you have the right to let out the property.
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Old 24.10.2016, 13:07
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Re: Is Zurich experiencing a housing bubble?

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even that isn't an issue so long as you have the right to let out the property.
That rules out anyone with a residential mortgage,

Leaving CH & not having a permit is not an issue for renting out, only an issue for purchasing.
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Old 24.10.2016, 14:29
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Re: Is Zurich experiencing a housing bubble?

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Prices have risen far faster than salaries in ZH, so yes that would sound like a bubble to me. If salaries are 15% higher than 15 years ago I would be surprised, I would expect them to be 5-7% higher than in 2001 on average.
According to the Bundesamt für Statistik average salaries increased 18% in that time period!


Inflation adjusted that was still 10%.
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