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  #61  
Old 17.04.2020, 13:38
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Re: Is it worth buying a flat in Switzerland?

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Not paying back the mortgage only makes sense if you save and invest the money otherwise. Simply not paying back and spending the money is stupid and the worst possible choice (Unless you have no heirs or only heirs you are more than willing to leave a huge debt behind).
Or you sell and the buyer takes over the mortgage...
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  #62  
Old 17.04.2020, 14:34
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Re: Is it worth buying a flat in Switzerland?

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I’m really not convinced by this. It only makes sense if you are reinvesting the repayments in something which gives a return higher than the mortgage rate and that should be looked at on a risk adjusted basis. Making a saving on your taxes because you deduct interest expense, still means you have to pay the interest expense in the first place.
Agree that you need to invest the money that is meant for repayment.

The alternative to paying interest is to pay rent and currently that is not a bad thing at all.

In the last few years and for the next 5 years my annual interest expense is less than 1 month's rent.

I've probably enjoyed the money I saved a bit too much, but I do have some Fundsmith etc.. I should be able to repay half the mortgage shall the interest rates go the wrong way.

I got lucky with my first property and sold it for twice as much. Without that I would not be able to afford my current place, and with prices where they are right now, it is difficult to find a decent deal.
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Old 17.04.2020, 16:22
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Re: Is it worth buying a flat in Switzerland?

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I’m really not convinced by this. It only makes sense if you are reinvesting the repayments in something which gives a return higher than the mortgage rate and that should be looked at on a risk adjusted basis. Making a saving on your taxes because you deduct interest expense, still means you have to pay the interest expense in the first place.
Have you noticed the interest rates at the moment... actually, for the last six or seven years, if not more? It is comically easy now (provided you meet the various lending criteria, of course) to get an interest-only home loan of CHF 1 million for CHF 500/month. With repayments that low, why would anybody pay the loan off? The tax savings are minimal, of course, but the virtually free money is a huge benefit.

Also, of course, a massive reason to buy rather than rent.

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  #64  
Old 17.04.2020, 21:44
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Re: Is it worth buying a flat in Switzerland?

As partially already mentioned, depends a lot on how much you earn (i.e. what your tax rate is) and what kind of property you want.

Owning an apartment in Zug will give you less tax burden than Zurich because your marginal tax rate and hence "self-renting income" caused tax burden will be lower.

For some types of apartments it is easier to find one to rent, for some easier to buy. E.g. there are not many available apartments to rent that are 5+ rooms. Overall the bigger the place you want the less likely to find it rentable.
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  #65  
Old 17.04.2020, 22:13
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Re: Is it worth buying a flat in Switzerland?

Have you ask the question to your banker or accountant?
Of course the bank want you as a customer but but they will still give you advice.
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  #66  
Old 20.04.2020, 23:50
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Re: Is it worth buying a flat in Switzerland?

Just posted in a similar topic in my case mainly it's about. "is it worth to sell now?"

What I observed is:
  • seems like interest rates are going down again after a slight jump
  • house ads are frozen(one new add in week in certain areas whereas in 2019 been observing much more) so that's not much of an indicator
  • last price drop in Switzerland has been at 1991-1993 mainly caused by government action to limit speculation by raising rates, extra regulations for investors and construction companies see reference
  • short-time work keeps everyone floating no defaults
  • construction activity is also halted by the virus

Read it "somewhere" it's the best time to buy during recession as economy will is eased by central bank so your dept is relatively smaller in the long run. Not sure how much of that is true.
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  #67  
Old 09.06.2020, 14:54
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Re: Is it worth buying a flat in Switzerland?

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Agree that you need to invest the money that is meant for repayment.

The alternative to paying interest is to pay rent and currently that is not a bad thing at all.

In the last few years and for the next 5 years my annual interest expense is less than 1 month's rent.

I've probably enjoyed the money I saved a bit too much, but I do have some Fundsmith etc.. I should be able to repay half the mortgage shall the interest rates go the wrong way.

I got lucky with my first property and sold it for twice as much. Without that I would not be able to afford my current place, and with prices where they are right now, it is difficult to find a decent deal.
i set mortgage repayments to be equal to market rent. that way, my housing consumption is transparent. interest rates may be low which enables many to 'afford' a mortgage. what many fail to calculate is that the total cost is high when you factor in high repayments from high purchase prices.
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Old 09.06.2020, 17:09
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Re: Is it worth buying a flat in Switzerland?

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what many fail to calculate is that the total cost is high when you factor in high repayments from high purchase prices.
No sure I get what you mean by this, when interest rates are so low.

Assuming you intend to live in Switzerland for a long period of time and that (if buying) you opt for a 10-year fixed term, fixed rate loan, Eigenmietwert- based tax is roughly offset by the tax deduction afforded by the interest payments, and that everything else stays stable... no inflation.. y'know, very Swiss:

Purchase price CHF 1.25 million

1. Rent option
Rental value of property: maybe CHF 3k/month (depends where it's located). Rent payable over ten years to live in someone else's property: CHF 360k

2. Buy option
Deposit paid CHF 250k (and that could be a non-starter for many, obviously).
Loan repayments: maybe CHF 500/month, interest only.
Interest paid over ten years to live in your own property: CHF 60k

After 10 years
Rent: you're down CHF 360k. You have to keep on renting.
Buy: you're down (deposit + interest) = CHF 310k, i.e. CHF 50k better off. You choose either to keep living there (yes, the new interest rates could be higher), or sell to buy somewhere else or rent. If you sell, you most likely get your deposit back and more (price appreciation). So after the initial ten years, compared to renting you're CHF 300k better off plus any capital gain (less tax if applicable).

Of course, if you had an arrangement with the bank whereby you can pay prinicipal + interest each month, you're waaaaaaay ahead after ten years. If not (and usually it's not possible with fixed rate, fixed term loans), just invest the difference between rent and loan interest each month, and see what you get after ten years.

Lots of small stuff (repairs, maintenance) left out, but you get the picture.

No contest.
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  #69  
Old 09.06.2020, 19:21
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Re: Is it worth buying a flat in Switzerland?

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No sure I get what you mean by this, when interest rates are so low.

Assuming you intend to live in Switzerland for a long period of time and that (if buying) you opt for a 10-year fixed term, fixed rate loan, Eigenmietwert- based tax is roughly offset by the tax deduction afforded by the interest payments, and that everything else stays stable... no inflation.. y'know, very Swiss:

Purchase price CHF 1.25 million

1. Rent option
Rental value of property: maybe CHF 3k/month (depends where it's located). Rent payable over ten years to live in someone else's property: CHF 360k

2. Buy option
Deposit paid CHF 250k (and that could be a non-starter for many, obviously).
Loan repayments: maybe CHF 500/month, interest only.
Interest paid over ten years to live in your own property: CHF 60k

After 10 years
Rent: you're down CHF 360k. You have to keep on renting.
Buy: you're down (deposit + interest) = CHF 310k, i.e. CHF 50k better off. You choose either to keep living there (yes, the new interest rates could be higher), or sell to buy somewhere else or rent. If you sell, you most likely get your deposit back and more (price appreciation). So after the initial ten years, compared to renting you're CHF 300k better off plus any capital gain (less tax if applicable).

Of course, if you had an arrangement with the bank whereby you can pay prinicipal + interest each month, you're waaaaaaay ahead after ten years. If not (and usually it's not possible with fixed rate, fixed term loans), just invest the difference between rent and loan interest each month, and see what you get after ten years.

Lots of small stuff (repairs, maintenance) left out, but you get the picture.

No contest.
You need to factor in the opportunity cost of the deposit to make an apples-to-apples comparison.

Option 1) Put down CHF 250k deposit and take out a CHF 1 m mortgage to buy a CHF 1.25m house. Assuming the house goes up in value by 2% a year (target level of inflation....and I know there has been no inflation in Switzerland but let's just assume for now) and the house would be worth CHF 1.52m in 10 years' time. Deduct your CHF 1m mortgage and your equity in the home is CHF 523k. Over the 10 years you paid out 500/month in interest for 6k annually and 60k over the decade. That works out to an annual return (IRR) of 6% per annum on the CHF 250k deposit.

Option 2) Invest the CHF 250k into an ETF and rent. Let's say the ETF returns 7% per annum so the fund is worth CHF 491k in 10 years' time. Along the way you spend 36k per annum on rent for 360k over the decade. That works out to an annual return (IRR) of -3% given the high rent. For you to be indifferent you would need the ETF to deliver 14% p.a. to achieve a 6% return......that's the power of leverage in real estate!

I refuse to buy in CH because (i) CHF 250k can buy me an entire apartment on the Costa del Sol where I plan to retire, and (ii) you need to be very secure in your job and your ability to find a new job which in the banking sector today in CH just isn't the case any more.
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Old 09.06.2020, 20:21
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Re: Is it worth buying a flat in Switzerland?

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You need to factor in the opportunity cost of the deposit to make an apples-to-apples comparison.

Option 1) Put down CHF 250k deposit and take out a CHF 1 m mortgage to buy a CHF 1.25m house. Assuming the house goes up in value by 2% a year (target level of inflation....and I know there has been no inflation in Switzerland but let's just assume for now) and the house would be worth CHF 1.52m in 10 years' time. Deduct your CHF 1m mortgage and your equity in the home is CHF 523k. Over the 10 years you paid out 500/month in interest for 6k annually and 60k over the decade. That works out to an annual return (IRR) of 6% per annum on the CHF 250k deposit.

Option 2) Invest the CHF 250k into an ETF and rent. Let's say the ETF returns 7% per annum so the fund is worth CHF 491k in 10 years' time. Along the way you spend 36k per annum on rent for 360k over the decade. That works out to an annual return (IRR) of -3% given the high rent. For you to be indifferent you would need the ETF to deliver 14% p.a. to achieve a 6% return......that's the power of leverage in real estate!

I refuse to buy in CH because (i) CHF 250k can buy me an entire apartment on the Costa del Sol where I plan to retire, and (ii) you need to be very secure in your job and your ability to find a new job which in the banking sector today in CH just isn't the case any more.
Absolutely correct to factor in the opportunity cost, of course -- and having done so, you've shown again that overwhelmingly, it makes sense to buy right now; financial sense, at least. But as always, buying is right for some and not for others. My personal circumstances mean that i'm here for the long haul, so it made sense to buy when I did a few years ago. For others such as yourself, there are other considerations that lead you to a different conclusion.

But not buying because of the relatively high cost of housing doesn't make much sense. Your Costa del Sol apartment could be paid for after ten years of home ownership in Switzerland, given the (effective) +9% return on owner-occupied real estate in your model. And if I'd never bought real estate in Sydney or London because of the then seemingly ludicrous prices, I'd have missed out on a tidy sum of capital that's come in handy over the years.
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Old 09.06.2020, 20:58
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Re: Is it worth buying a flat in Switzerland?

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No sure I get what you mean by this, when interest rates are so low.
what i mean is, while interest rates are low, let's say you pay 1% interest on 1000k property. so 12k interest per year. accumulating an additional 20k of capital on the side each year, you will pay off the property in 50 years.

in a 6% pa interest rate environment, you buy a 200k house and pay 12k interest per year. accumulating 20k of capital on the side each year, you pay off the property in 10 years.

people make the mistake of looking only at the interest affordability and ignoring the capital element.
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Old 09.06.2020, 20:58
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Re: Is it worth buying a flat in Switzerland?

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(ii) you need to be very secure in your job and your ability to find a new job which in the banking sector today in CH just isn't the case any more.
Not sure I understand this part.

Say you lose your job. If you are renting, you need to vacate within 3 months or move to a cheaper place, but no-one will rent you anything if you don't have a job).

If you are paying a mortgage, unless interest rates go up 3x, you can probably still afford many months more of interest payments. You can move to a cheaper place and rent your place out (at least you can call this income), or worst case scenario, sell your place and get back your deposit and a bit of profit, unless of course your property value has dropped so much (in which case, renting it out is a better option.).
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Old 10.06.2020, 19:20
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Re: Is it worth buying a flat in Switzerland?

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Not sure I understand this part.

Say you lose your job. If you are renting, you need to vacate within 3 months or move to a cheaper place, but no-one will rent you anything if you don't have a job).

If you are paying a mortgage, unless interest rates go up 3x, you can probably still afford many months more of interest payments. You can move to a cheaper place and rent your place out (at least you can call this income), or worst case scenario, sell your place and get back your deposit and a bit of profit, unless of course your property value has dropped so much (in which case, renting it out is a better option.).
The RAV buys you 18 months give or take and with 3 months' notice that buys you 21 months or almost 2 years to find something. The reality is that no one will touch you in my business if you've been out of the market for over a year. In my field there are maybe 2-3 jobs that come up every year in CH and it has taken me close to a year to change jobs when I have. Most of the jobs I do are in London so if I lose my job in CH I have maybe 6 months to find something here before I move back to London. So for me buying here just doesn't make sense.

And trust me if house prices are falling you can be 100% sure banks will be "restructuring" costs (employees) haha.
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