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Old 04.02.2020, 12:58
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Price to Rent Ratio: Should I adjust for the Swiss Market?

Hi,

I read in some guides that a reasonable measure to decide whether it is better financially to buy a house or rent is the so-called Price to Annual Rent ratio: If it is more than 15, renting is more beneficial financially, otherwise buying.

Considering that essentially in all Switzerland this ratio is more than 15 (or even 20), does that value still hold here? If not what else do I need to consider? Any guide is more than appreciated, about what to do with X francs instead of paying it as a downpayment for a mortgage, so that the monthly Y francs of rent is covered. Especially since more and more banks are pressuring their clients to do something with the money in their accounts!

More than thanks
Best
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Old 04.02.2020, 13:51
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

30:1 at our place for the estimated price, 20:1 at the purchased price.

Tom
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Old 04.02.2020, 14:22
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Hi,

I read in some guides that a reasonable measure to decide whether it is better financially to buy a house or rent is the so-called Price to Annual Rent ratio: If it is more than 15, renting is more beneficial financially, otherwise buying.

Considering that essentially in all Switzerland this ratio is more than 15 (or even 20), does that value still hold here? If not what else do I need to consider? Any guide is more than appreciated, about what to do with X francs instead of paying it as a downpayment for a mortgage, so that the monthly Y francs of rent is covered. Especially since more and more banks are pressuring their clients to do something with the money in their accounts!

More than thanks
Best
I'd say the 15 figure is a good rule of thumb.
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Old 04.02.2020, 14:46
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

All these ratios and rules of thumb are all proxies for historical rental yields.

20x is 5% and so on...

The loose central banks’ monetary policy around the world has compressed those yields a lot because lots of people with cheap money are chasing the same assets leading to increase in prices.

So in my view you are asking the wrong question. It’s not whether you should adjust the ratio but whether you should part take in this speculative bubble altogether!
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Old 04.02.2020, 14:55
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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30:1 at our place for the estimated price, 20:1 at the purchased price.

Tom
Thanks. You mean it was 20 when you bought it and is 30 now?
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Old 04.02.2020, 15:31
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Thanks. You mean it was 20 when you bought it and is 30 now?
The Bank valued it for more than purchase price, much more......

It’s different this time are the 4 words that have cost investors More money than anything else
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Old 04.02.2020, 15:59
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

Isn't the average rental yield in Switzerland around 3%?

To me, renting makes perfect sense here. I have zero desire to buy.
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Old 04.02.2020, 18:11
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Isn't the average rental yield in Switzerland around 3%?

To me, renting makes perfect sense here. I have zero desire to buy.
Why? What would you do with 200,000 CHF then that's better than paying the downpayment of a flat you can rent for 2000.- CHF per month?
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Old 04.02.2020, 18:34
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Why? What would you do with 200,000 CHF then that's better than paying the downpayment of a flat you can rent for 2000.- CHF per month?
You could pay the rent for 8.33 years and sleep better at night
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Old 04.02.2020, 19:00
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

It's about 60:1 where I live. Either cheap rents or overly inflated house prices.
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Old 04.02.2020, 19:09
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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It's about 60:1 where I live. Either cheap rents or overly inflated house prices.
Thats insane as repair / refurbishment costs would average 1% over the long term. Imagine what happens when mortgage rates hit 5%
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Old 04.02.2020, 20:02
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Thats insane as repair / refurbishment costs would average 1% over the long term. Imagine what happens when mortgage rates hit 5%
Will they soon? In next 10, 20, 30 years? The central banks are now effectively setting the mortgage interest rates and not supply and demand.
So if price of money suddenly skyrocketed on the market what prevents a central bank heavy hand intervention to avoid a recession if they have already broken all the taboos?
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Old 04.02.2020, 20:07
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Will they soon? In next 10, 20, 30 years? The central banks are now effectively setting the mortgage interest rates and not supply and demand.
So if price of money suddenly skyrocketed on the market what prevents a central bank heavy hand intervention to avoid a recession if they have already broken all the taboos?
Who knows, however many would be bankrupted by cash calls if interest rated did return to normal. UK for example cant make a cash call on a domestic mortgage
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Old 04.02.2020, 20:34
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Thats insane as repair / refurbishment costs would average 1% over the long term. Imagine what happens when mortgage rates hit 5%
Or the employment raising and many people living Switzerland for other places. Or just looking for a lower rent.

With the stagnant or even decreasing wages there is not much room for rent increases. This will result in a lot of empty places.
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Old 04.02.2020, 23:43
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Why? What would you do with 200,000 CHF then that's better than paying the downpayment of a flat you can rent for 2000.- CHF per month?
Though by paying or buying a flat or house you may gain something more valuable than simply a financial transaction.
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Old 05.02.2020, 07:49
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

Buying a house in CH for financial reasons makes 0 sense, look at UK where you can get up to 10% rental yields. Here you'll be lucky with 3%.

In Zug they sell for 60x, it is insane. No margin for error, anything goes wrong and all these owners will be in deep trouble.

Only reason I see to buy something here is to have a home for your family if you know you'll be staying your whole life and don't intend to sell.
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Old 05.02.2020, 07:59
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Buying a house in CH for financial reasons makes 0 sense, look at UK where you can get up to 10% rental yields. Here you'll be lucky with 3%.

In Zug they sell for 60x, it is insane. No margin for error, anything goes wrong and all these owners will be in deep trouble.

Only reason I see to buy something here is to have a home for your family if you know you'll be staying your whole life and don't intend to sell.



Not strictly true....


It all depends on the price you pay for the property. Sure if you buy a new build it will cost a lot and your return will be low. But, if you buy older properties at the right price you can make very good money, my average return on 8 older properties is 6.2%
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Old 05.02.2020, 08:47
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

If you're young, envisige being in Switzerland for another 10yrs and could cope with it taking a little while to sell your property on when the time comes, then buying makes perfect sense.

We had an option to buy our apartment a few months ago, so I know the rate for us is 25:1 (24.94:1 to be exact). In our 50's, that investment isn't worthwhile, particularly when we both have second homes. However, the biggest factor for me was how long property can sit on the market here without a buyer. We're very confident that we can easily liquidate our current assets when we pool our resources and choose our retirement location, so I don't see the point of having anything that anchors us at this stage.
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Old 05.02.2020, 09:08
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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Though by paying or buying a flat or house you may gain something more valuable than simply a financial transaction.
Of course. I'm discussing only the financial side here.
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Old 05.02.2020, 09:14
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Re: Price to Rent Ratio: Should I adjust for the Swiss Market?

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If you're young, envisige being in Switzerland for another 10yrs and could cope with it taking a little while to sell your property on when the time comes, then buying makes perfect sense.

We had an option to buy our apartment a few months ago, so I know the rate for us is 25:1 (24.94:1 to be exact). In our 50's, that investment isn't worthwhile, particularly when we both have second homes. However, the biggest factor for me was how long property can sit on the market here without a buyer. We're very confident that we can easily liquidate our current assets when we pool our resources and choose our retirement location, so I don't see the point of having anything that anchors us at this stage.
we wanted the kids to have a house to grow up in. I dont expect we'll make any money when we sell it but if you add it up over the mortgage term i expect we won't actually lose any. in that time we've had a house we can shape into our own, the kids have drawn on the walls, we've installed new bits, taken some old stuff down, changed some things. It's all dependent on what you are into really, we quite enjoy it.

mortgages might go to 5%, we might struggle to sell it. Then again, mortgage rates might stay the same, and when our friends sold round here they had three offers in a week.

you only live once.
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