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  #21  
Old 15.06.2018, 11:41
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Re: Property Ladder in Switzerland?

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Is this a good idea to buy a small property, wait a few years, and then exchange it with a larger house, instead of just waiting to collect enough money for that larger house? Doesn't the money lost during selling/buying flats make it unreasonable?
Depends! If you are a bit handy it makes more sense as labour costs here are high. Depending on location there is money to be made by renovating if you can do some things yourself, traditional Swiss renovation costs are high if you do not know where to maximise savings.

Capital gains tax issues are overstated on here, you make money - you pay tax on it. Rolling it over to the next property delays and minimises this. Reminds me of a Scottish joke, Paddy and Mick are walking along the street and Mick picks up an envelope on the footpath full of money, it is a pay packet. Then say "Ah me" What is wrong asks Paddy, "look how much tax I fookin paid!"

But if you're handy at crypto currency or share trading you probably can get a higher rate of return with your money so this needs to be balanced out against the security and comfort of living in your own home which comes with a cost.
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Old 15.06.2018, 11:42
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Re: Property Ladder in Switzerland?

As renovation has been brought up, I'll throw in another bit o' info I learned the hard way:

Before you spend much time contemplating renovation costs and tax deductibility, first determine if the renovations you envision necessary are even allowable. Many homes I have looked at were in deporable condition - yet bringing them up to today's standards can be a frustrating and costly experience even before the project begins.

You don't want to buy something that needs X, Y, or Z done to make it livable to your standard only to find that X, Y, or Z are either outright forbidden, will require a permit that might not be easily granted, or will require permission that will take a lot of horse trading with your neighbors (another expense) to get.

What is permitted, what is forbidden, is generally local. Just make sure you learn definitively what rules and 'soft restrictions' you might face before you make the purchase.

Get every communication with the authorities in writing - and be sure you determine that the person telling you that X, Y, or Z is allowed really has the authority to make that statement.

If you run up against non-commital answers to your permit questions, do not buy unless you can live with the property exactly as is.

Again, good luck.
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  #23  
Old 15.06.2018, 11:49
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Re: Property Ladder in Switzerland?

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Is this a good idea to buy a small property, wait a few years, and then exchange it with a larger house, instead of just waiting to collect enough money for that larger house? Doesn't the money lost during selling/buying flats make it unreasonable?
it depends. if you have a plan and find a nice place now to live in and then can plan to have enough to buy a bigger place when you need more space then it can work. yes, you will pay extra transaction costs.

whether you make or lose money depends on the price you buy and sell at, as well as the difference in the rent during the intermediate time.
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Old 15.06.2018, 12:32
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Re: Property Ladder in Switzerland?

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interest rates is just a single factor among many factors. but even on this one, you could be wrong. while there are stronger signs than ever of rising rates (particularly in the US, also ECB stimulus wind down) it is not at all clear that a return to rates of 5% is going to happen any time soon - particularly in Switzerland.
Indeed there are many factors to consider. To model all the variables and your assumptions you would need a degree in quantitative finance and even then you could get it wrong, as the model simply reflects the assumptions.

Another factor to consider is the value of the Swiss Franc, if interest rates rise and the economies in the US + EU start performing better the Swiss Franc is more likely to devalue. The prices may well stay the same in CHF terms.

My long term strategy here is to diversify from CHF by holding a basket of foreign denominated assets in USD, GBP and EUR whilst staying well clear of, what I believe to be, an over heating property market in Switzerland. It doesn’t make sense to be honest anyway with Swiss property rental yields of sub 4%.

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The experience in Japan has shown that you can be stuck in a low interest environment for a long time. Also, some bank on a 'reversion' to an 'average' of 5%, but there's actually an argument if you look more broadly, the 5% level was an anomaly and we are actually now reverting to normal low interest rates.
How far along would you have to look for the 5% to be an anomaly? I’m curious...

Lower interest rates were simply introduced to manipulate the GDP figures (a.k.a stabilize the economy) and inflate away old debt. The debt cycle cannot be sustained for such a long period of time and sooner or later the central banks will have to unwind or be faced with run away inflation. It might take a few decades but it could also happen very quickly and sharply! I just don’t wanna be the one left without a chair when the music stops.

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if rates really stay this low for another few decades, swiss property could prove to be a sound investment, even at the current high prices.
If that happens they will be a good hedge against inflation for sure.
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Old 15.06.2018, 12:39
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Re: Property Ladder in Switzerland?

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How far along would you have to look for the 5% to be an anomaly? I’m curious...
basically, except for the 50-60 year great inflation period starting around the 1960s, rates have always typically been below 4%. arguably, those 50 or so years are the anomaly and we are now returning the the long term natural interest rate levels.

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Old 15.06.2018, 14:56
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Re: Property Ladder in Switzerland?

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How far along would you have to look for the 5% to be an anomaly? I’m curious...

Lower interest rates were simply introduced to manipulate the GDP figures (a.k.a stabilize the economy) and inflate away old debt. The debt cycle cannot be sustained for such a long period of time and sooner or later the central banks will have to unwind or be faced with run away inflation. It might take a few decades but it could also happen very quickly and sharply! I just don’t wanna be the one left without a chair when the music stops.
Interest rates alone are useless. What matters is real interest, that is nominal interest less inflation. Otherwise you may think 10% interest earned is quite nice even though you're losing value because inflation happens to be running wild at 15%.

Plus the income tax bite is much bigger, both absolute and in percentage terms (relative to the underlying asset), in a high-inflation environment. That's one reason why a creditor will (or should) prefer a low-inflation environment whereas a debtor will prefer high inflation. This is especially true for for-rent properties where the renters finance the interest payments that are increased by elevated inflation while it inherently devalues the nominally constant (or modeately increasing) debt.

Once you correct Phils chart for inflation the spike will immediately turn relatively flat or even fall into negative territory. This is what real interest rates in the UK looked like according to theglobaleconomy.com.

Please note that the average real interest rate for the period depicted was 1.38%:



Last edited by Urs Max; 15.06.2018 at 15:09.
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Old 15.06.2018, 15:11
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Re: Property Ladder in Switzerland?

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Interest rates alone are useless. What matters is real interest, that is nominal interest less inflation. Otherwise you may think 10% interest earned is quite nice even though you're losing value because inflation happens to be running wild at 15%.

Plus the income tax bite is much bigger, both absolute and in percentage terms (relative to the underlying asset), in a high-inflation environment. That's one reason why a creditor will (or should) prefer a low-inflation environment whereas a debtor will prefer high inflation. This is especially true for for-rent properties where the renters finance the interest payments that are increased by elevated inflation while it inherently devalues the nominally constant (or modeately increasing) debt.

Once you correct Phils chart for inflation the spike will immediately turn relatively flat or even fall into negative territory. This is what real interest rates in the UK looked like according to theglobaleconomy.com.

Please note that the average real interest rate for the period depicted was 1.38%:



this is English Forum Switzerland not UK

https://www.theglobaleconomy.com/Swi...interest_rate/
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  #28  
Old 15.06.2018, 16:16
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Re: Property Ladder in Switzerland?

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Interest rates alone are useless. What matters is real interest, that is nominal interest less inflation. Otherwise you may think 10% interest earned is quite nice even though you're losing value because inflation happens to be running wild at 15%.
By the same token, interest rate could be zero and you could have deflation. (Which is somewhat paradoxical) so basically a scenario where the low interest rates stop having an effect as asset prices just can’t be sustained so high anymore.


Once you adjust for inflation (which is another topic as to how that should be measured), the recent (last 8-10 years) low interest rates are even lower since headline inflation has beeen “stubbornly low” has still been around the 1% mark.

Conclusion? I still don’t see a justification of buying in Switzerland. I’m happy to wait on the sidelines for an extra few years. Relatively better opportunities elsewhere.
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Old 15.06.2018, 17:10
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Re: Property Ladder in Switzerland?

I agree with the above.

I have owned properties in three different countries but the case for buying in Switzerland is simply not strong enough.
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Old 15.06.2018, 17:10
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Re: Property Ladder in Switzerland?

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Conclusion? I still don’t see a justification of buying in Switzerland. I’m happy to wait on the sidelines for an extra few years. Relatively better opportunities elsewhere.
You're entitled to your opinion, of course. But as a non homeowner I suspect you're suffering a little from confirmation bias, i.e. you're picking the financial elements that support your chosen viewpoint but ignoring all the other aspects of owning a home.

Even financially I don't think you're right. Up until this morning we actually owned three properties, now just two, and I don't have a single regret. The one we just sold in Engelberg has increased in value by 40% over ten years, for example, which isn't half bad in anyone's book. Compared to renting, even including all the nebenkosten and interest we paid over that time, we're up by something quite close to the original purchase price.

Which is nice

Edit: OK, our real net gain is probably only half the original price, but we've had ten years of using the place, so I think we've done pretty well out of out.
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Old 15.06.2018, 17:24
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Re: Property Ladder in Switzerland?

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You're entitled to your opinion, of course. But as a non homeowner I suspect you're suffering a little from confirmation bias, i.e. you're picking the financial elements that support your chosen viewpoint but ignoring all the other aspects of owning a home.
There is bias on both sides of course, the non-buyers look for ways to justify their decision and the buyers the same way. Yours is of course survivorship bias

Just because it worked out for you over the last 10 years or so it doesn’t mean it will work out for everyone else going forward. The people who buying a property didn’t work outsi well for them don’t tend to speak out.

I try to keep my decisions unbiased and based on facts and as I previously said, I have been wrong about property prices over the last 10 years, no denying that.
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  #32  
Old 15.06.2018, 18:01
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Re: Property Ladder in Switzerland?

I think part of the picture here is that many of us are exposed to advice from our parents and people of their generation. Both my own parents and those of my OH made a killing on propery, despite not otherwise having much financial intuition or understanding. They bought property when it was dirt cheap back in the 1970s or thereabouts when you could still get a mid-market property in a nice area as a young couple on a single starter salary. They downsized or moved off to Spain when they retired and are now living in the comfortable situation of having a fabulous house with no mortgage plus a heapload of cash that was left over from the downsizing move.

And of course they don't miss an opportunity to advise us younger folks to do the same.

Maybe they are right.

Only past performance is no guarantee of future success and all that.
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Old 15.06.2018, 18:02
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Re: Property Ladder in Switzerland?

With the interest rates today is does makes sense to buy something that you'd otherwise be renting (as opposed to something you'd want to own as your 'dream' property) - provided you have the money for the downpayment.
Let's assume an apartment that one currently rents for CHF2500/month costs 1M to buy (around 400 monthly rents - I've seen them being sold cheaper)

Putting 200K down and taking the 10-year fixed mortgage at 1.2% will result in monthly costs of CHF 800 for interest and some 500 for building reserve fund (other monthly costs being equal for rental and owner-occupied property) so the savings are approx. CHF 1200/month, which lets you accumulate additional 144K by the time the mortgage is due for renewal so then you have close to 35% equity of the buying price.

The doomsday scenario is that in 10 years the bank values the property at only 800K (20% price drop) and you'll have to come up with the extra 160K to maintain the minimum required 20% equity; on top of this the interest shoots up to 5% so now you have to pay CHF 2666/month in interest alone.

However, the probability of a bad scenario is more like the interest perhaps going up to 3% or the value dropping by 10% but not both so you're still under 2K of interest payment for you subsequent mortgage term and therefore with the same monthly cost as the rent would be.

A 'reasonably' good scenario is that the interest rates rise but not dramatically so you can still get renewal 10-year term at 2.4% (double the rate you get today) and the price appreciates by some 15% so you don't need to put any additional money down to reach the 35 equity level - your interest + building reserve payment is 2100/month and you get to keep all the cash you saved over the first 10 years.

At that time you should still be able to rent it out for at least the same amount as today (2500/month) in case you decided to live elsewhere - no pressing need to sell the property.

Of course, none of this is relevant if you don't have the 200K in assets needed to start the 'journey', which is the case with many people who are 'sentenced' to renting without even getting a chance to bet on the future.

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  #34  
Old 15.06.2018, 18:22
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Re: Property Ladder in Switzerland?

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With the interest rates today is does makes sense to buy something that you'd otherwise be renting (as opposed to something you'd want to own as your 'dream' property) - provided you have the money for the downpayment.
Let's assume an apartment that one currently rents for CHF2500/month costs 1M to buy (around 400 monthly rents - I've seen them being sold cheaper)

Putting 200K down and taking the 10-year fixed mortgage at 1.2% will result in monthly costs of CHF 800 for interest and some 500 for building reserve fund (other monthly costs being equal for rental and owner-occupied property) so the savings are approx. CHF 1200/month, which lets you accumulate additional 144K by the time the mortgage is due for renewal so then you have close to 35% equity of the buying price.

The doomsday scenario is that in 10 years the bank values the property at only 800K (20% price drop) and you'll have to come up with the extra 160K to maintain the minimum required 20% equity; on top of this the interest shoots up to 5% so now you have to pay CHF 2666/month in interest alone.

However, the probability of a bad scenario is more like the interest perhaps going up to 3% or the value dropping by 10% but not both so you're still under 2K of interest payment for you subsequent mortgage term and therefore with the same monthly cost as the rent would be.

A 'reasonably' good scenario is that the interest rates rise but not dramatically so you can still get renewal 10-year term at 2.4% (double the rate you get today) and the price appreciates by some 15% so you don't need to put any additional money down to reach the 35 equity level - your interest + building reserve payment is 2100/month and you get to keep all the cash you saved over the first 10 years.

At that time you should still be able to rent it out for at least the same amount as today (2500/month) in case you decided to live elsewhere - no pressing need to sell the property.

Of course, none of this is relevant if you don't have the 200K in assets needed to start the 'journey', which is the case with many people who are 'sentenced' to renting without even getting a chance to bet on the future.
If you do have 200K in assets, you could invest them and get 6% return, which is 12K per annum or 1K per month. If the rent is 2.5K and you use that extra income against the rent, that leaves 1.5K to be payed from your salary. In your scenario with 500 for building reserve and 800 for interest, that puts you at 1.3K, so only 200 CHF cheaper than renting.

So the question is, does the risk offset the savings? Would you prefer a diverse and flexible investement portfolio or having all your eggs in one basket?
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  #35  
Old 15.06.2018, 18:28
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Re: Property Ladder in Switzerland?

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If you do have 200K in assets, you could invest them and get 6% return, which is 12K per annum or 1K per month. If the rent is 2.5K and you use that extra income against the rent, that leaves 1.5K to be payed from your salary. In your scenario with 500 for building reserve and 800 for interest, that puts you at 1.3K, so only 200 CHF cheaper than renting.

So the question is, does the risk offset the savings? Would you prefer a diverse and flexible investement portfolio or having all your eggs in one basket?
But is 6% return guaranteed?
1.2K/month saved on rent equals 7.2% guaranteed annual return on 200K principal.
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Old 15.06.2018, 18:40
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Re: Property Ladder in Switzerland?

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If you do have 200K in assets, you could invest them and get 6% return, which is 12K per annum or 1K per month. If the rent is 2.5K and you use that extra income against the rent, that leaves 1.5K to be payed from your salary. In your scenario with 500 for building reserve and 800 for interest, that puts you at 1.3K, so only 200 CHF cheaper than renting.

So the question is, does the risk offset the savings? Would you prefer a diverse and flexible investement portfolio or having all your eggs in one basket?
Indeed!

I’ve brought this up time and time again, comparing interest payments ONLY to rent is not a fair comparison. Mainly because it doesn’t account for the risk, incidental/maintenance costs, cost of opportunity on the deposit and flexibility of renting.

Although the previous poster does try to make some assumptions to mitigate what he calls a “dooms day” worst case scenario where the property price going down 20%.

The fair value for taking such a risk can be crudely calculated as:

20% x 1m / 10yr x 12 = CHF1’666.- per month!

So when you add that to the equation buying is at best a break even investment decision over 10 years assuming a 20% correction. If no correction you have roughly a 20% upside.

I know what I would do here based on these assumption...

appy to hear further comments on this.
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Old 15.06.2018, 18:44
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Re: Property Ladder in Switzerland?

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But is 6% return guaranteed?
1.2K/month saved on rent equals 7.2% guaranteed annual return on 200K principal.
You have to adjust your return for leverage!!
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Old 15.06.2018, 18:46
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Re: Property Ladder in Switzerland?

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But is 6% return guaranteed?
I think that figure is a staitiscal average over the long term. These last couple of years the market has done better than that (double figures) and I expect maybe in the next years it may fall back. But as an average I think it's a good figure.

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1.2K/month saved on rent equals 7.2% guaranteed annual return on 200K principal.
From that way of looking at it, yes. But the penalty is that you're not in control of your investment. You can't react to trends in the market. You aren't diversified. And as The Love Doctor says, the bank has offlaoded the risk onto you, basically using you as a cheap insurance policy. You are tied to a single location which may make things difficult if you need to change jobs.

OK, maybe some people don't care about those aspects and see it as an invest and then forget for 30 years scenario. For them, it does have some merits.
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Old 15.06.2018, 19:37
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Re: Property Ladder in Switzerland?

The buy-or-rent-and-invest debate goes on again!

When I moved to Switzerland nearly 30 years ago the population was 6 million. Today it‘s 8.3 million. All these extras people have to live somewhere.

I reckon the best indicator of future Swiss property prices will be the population in 2040. If this is 12 million, then you can‘t lose. If it‘s 5 million we property owners can cry and wish we had paid rent (which doubtless didn‘t go down) and played the markets (which will have suffered from the same cause that reduced the population)...
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Old 15.06.2018, 19:39
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Re: Property Ladder in Switzerland?

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If you do have 200K in assets, you could invest them and get 6% return, which is 12K per annum or 1K per month. If the rent is 2.5K and you use that extra income against the rent, that leaves 1.5K to be payed from your salary. In your scenario with 500 for building reserve and 800 for interest, that puts you at 1.3K, so only 200 CHF cheaper than renting.

So the question is, does the risk offset the savings? Would you prefer a diverse and flexible investement portfolio or having all your eggs in one basket?
agree with you. i wouldn't buy property with 3% rental yield. as i've said before, the worst case i would accept is around 6.5% rental yield. which would be comparable to your stock case.

in switzerland the situation is worse than other countries, you can't live in property tax-free and gains are taxed heavily. whereas shares have no capital gains. this is the opposite to many other countries, where there are huge tax advantages/planning you can do and property gains can be tax free compared to shares which can be taxed at higher rates. (not to mention transaction costs)

regardless two advantages that property retains are:

- returns are naturally inflation adjusted
- returns are 'guaranteed' to the extent that you live in your own home. by fixing a long term rate, you can get an almost risk free return
- (also due to the pseudo risk free nature, it is one of the cases where taking on debt is not too bad, you boost your returns to 30% decreasing to 20% as you pay down the required part of debt) - in 3 years you get payback on your initial capital investment even in this relatively 'bad' environment. Just think how it would be if you got to live in it tax free and with mortgage interest deductions and with tax write-offs for maintenance. so not unusual for those coming from more favourable regimes to be more bullish on property)
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Last edited by Phil_MCR; 15.06.2018 at 19:49.
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