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Old 29.07.2020, 11:06
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Apartment or What else? Any advice, Please.

Hi Everyone!

Hope you all are keeping well

First of all, Please forgive me if I am asking novice questions for asking things that no one in their right mind asks. I was an orphan growing up on my own doing plenty of mistakes without having anyone wise around who could guide. That is why I hope to learn from your inputs and experiences.

Recently relocated to Switzerland with my small family a few months back. I have around 200000 CHF savings. Thankfully I have a job, and I can see myself living in Switzerland for 15-20 years.

I am paying 2000 CHF a monthly rent for an apartment that I dislike, and I started thinking:

1) Is buying a small/meduim apartment (Maximum cost of around 500000) in Switzerland is a financial suicide?

2) I read some of your comments on this forum that if a person paid off the mortgage, then, s/he will be hit so hard and bad by paying lots of taxes or other things I do not know. Not sure I understood, But, Who wants to live and the bank is knocking on the door every month. Could you please elaborate?

3) Is buying anywhere else other than Zürich/Zug is a mistake? Or, If I paraphrase, Is Zürich/Zug regions are the only safe investment while buying in other regions is either risky or will never make any profit even after decades?

My point of Q#3 is: Is it better to buy an apartment in Kanton Aargau, Or, Will it be better to buy a smaller/older apartment in Zürich/Zug?

4) Is it wiser to wait a bit so that 'maybe' prices go down?

5) If buying in Switzerland is not recommended, Anyone here bought an investment apartment elsewhere in Europe to rent it out? Any experiences to share, Please?

6) If this whole thing of buying a property is not recommended, Should I just buy stocks for 100000 or what do I do instead?

Lastly, Truly thank you all very, very much for a great informative and helpful forum.
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Old 29.07.2020, 11:09
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Re: Apartment or What else? Any advice, Please.

1) No, but finding something for that amount in the Zurich/Zug area will be difficult.


4) Prices going down? In Switzerland for houses? Not much chance.
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Old 29.07.2020, 11:21
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Re: Apartment or What else? Any advice, Please.

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4) Prices going down? In Switzerland for houses? Not much chance.
This fall (postponed due to COVID) there will be yet another one of this popular votes initiated by the SVP which has the potential to trigger a lot of unforeseen consequences if it passes.
https://www.admin.ch/gov/en/start/do...nitiative.html
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Old 29.07.2020, 12:32
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Re: Apartment or What else? Any advice, Please.

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This fall (postponed due to COVID) there will be yet another one of this popular votes initiated by the SVP which has the potential to trigger a lot of unforeseen consequences if it passes.
https://www.admin.ch/gov/en/start/do...nitiative.html
For sure we will vote YES!

Tom
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Old 29.07.2020, 12:34
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Re: Apartment or What else? Any advice, Please.

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2) I read some of your comments on this forum that if a person paid off the mortgage, then, s/he will be hit so hard and bad by paying lots of taxes or other things I do not know. Not sure I understood, But, Who wants to live and the bank is knocking on the door every month. Could you please elaborate?
Example:

Apartment is worth 600k, so 200k for taxes. Mortgage is 300k.

Value thus for taxes is 200k-300k= -100k.

Tom
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Old 29.07.2020, 13:04
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Re: Apartment or What else? Any advice, Please.

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Example:

Apartment is worth 600k, so 200k for taxes. Mortgage is 300k.

Value thus for taxes is 200k-300k= -100k.

Tom
Could you please be kind and explain more?
My point of Q#2 is: If I bought an apartment for 600K, I will pay my savings i.e. 200K upfront, Remaining: 400K... where I will take a mortgage and thus I have to pay in total 'I guess' 550K... maybe?

My question is: Should the person strive to pay as much as possible so that s/he can pay it off in for example 15 years? Or, Is it better to pay as little as possible to have the mortgage running forever and ever?


Sorry... I think I need help
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Old 29.07.2020, 13:19
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Re: Apartment or What else? Any advice, Please.

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2) I read some of your comments on this forum that if a person paid off the mortgage, then, s/he will be hit so hard and bad by paying lots of taxes or other things I do not know. Not sure I understood, But, Who wants to live and the bank is knocking on the door every month. Could you please elaborate?
There is no substantial, direct real estate tax in Switzerland. Instead an other unique system is used. If you have property which you use for your own an
imputed rental value is added to your income (it is around 60% of the what you would charge a tenant). On the other hand you can deduct maintenance cost and mortgage interest payments from your income.

For every CHF 1000 you pay in interests you safe around CHF 250 - 400 in taxes (depending on your actual marginal tax rate). As you see, to save taxes you must spend more money than you actually save. Banks will heavily focus on the saving taxes aspect. Because everyone wants to save taxes, not matter what the costs is. Sometimes literally.

In the whole scheme the additional wealth and wealth tax is irrelevant. It goes like this:

You have 200k in cash, 0% interest and a 200k mortgage for 1.5% interest. Marginal tax rate is 30%. Taxable net wealth CHF 0.

Option 1: You repay the mortgage. Your tax burden increases by CHF 900. You save CHF 3000 in interest payments: Net gain CHF 2100.

Option 2: You keep the mortgage but invest the 200k in a product which has a return of at least 1.5%, which is also a net gain of CHF 2100 after taxes.
The return can be as low as 1.05% when no interest and dividends are involved but the gain is mostly or only from increased value of the underlying securities as there is usually no capital gains tax.

Your friendly bank, which only wants your very best (your hard earned money ) has just this very nice product (with super crazy high TER ) for this.

https://www.credit-suisse.com/ch/en/...en-201804.html
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Old 29.07.2020, 13:20
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Re: Apartment or What else? Any advice, Please.

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I am paying 2000 CHF a monthly rent for an apartment that I dislike, and I started thinking:

1) Is buying a small/meduim apartment (Maximum cost of around 500000) in Switzerland is a financial suicide?
Nobody knows, as that depends to a large part on prices in the future. However, with a small family (I presume one child) you're unlikely to find something suitable for 500k in the Zug/Zürich area.

One additional thing to consider is the so-called "Eigenmietwert" (EW). By owning, you no longer pay rent, which means your living costs go down accordingly without an apparent increase in taxable income. To correct that, the EW has been introduced; a part of the rent you'd earn by letting your property (instead of living in it yourself) will be added to your taxable income (usually something like 50-60%, however the imputed rent is usually at the low end of the market rent or even below that).

Now, changes are in the works WRT the EW, there's a high chance that it will be removed entirely in the coming years. That would increase the attractiveness of self-ownership, especially for first-owners, and may well drive prices upwards some more. See here for some explanations (in German). deepl.com is your friend if you need it translated.

However, if the national vote mentioned up-thread passes we may well get a repeat of the late-ish '90ies, which saw a steady erosion of real estate prices. In those days there was little to zero net immigration and thus limited growth in demand. Conversely the permanent net immigration since ~2003 causes new demand all the time, which makes falling prices unlikely while that lasts.
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Old 29.07.2020, 14:24
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Re: Apartment or What else? Any advice, Please.

If the vote is passed, will it actually be implemented? Wasn´t the result of the last similar referendum basically ignored?
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Old 29.07.2020, 15:10
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Re: Apartment or What else? Any advice, Please.

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If the vote is passed, will it actually be implemented? Wasn´t the result of the last similar referendum basically ignored?
The last one was thrown down the gutter.
https://de.wikipedia.org/wiki/Eidgen...undlagen%C2%BB

It was the one before that, which was marginally approved
https://de.wikipedia.org/wiki/Eidgen...anderung%C2%BB
But as 450 million ist still an actual upper limit nothing was ignored but just creatively interpreted.

The new one has much more strict and exact wording and wants to abolish the FMOP directly.
https://de.wikipedia.org/wiki/Eidgen...anderung%C2%BB
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Old 29.07.2020, 20:25
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Re: Apartment or What else? Any advice, Please.

I’ll vote NO.

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For sure we will vote YES!

Tom
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Old 30.07.2020, 07:57
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Re: Apartment or What else? Any advice, Please.

Interesting that there is a specific time limit on when the FMOP must be revoked by. 12 months will not be eough for the Bundesrat to come up with a "creative solution" this time.
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Old 30.07.2020, 11:22
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Re: Apartment or What else? Any advice, Please.

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For sure we will vote YES!

Tom
OK, then I don’t even need to bother reading it, it’s a NO.
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Old 30.07.2020, 12:02
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Re: Apartment or What else? Any advice, Please.

Quote:
Is buying a small/meduim apartment (Maximum cost of around 500000) in Switzerland is a financial suicide?
One of the best bits of marketing ever was the property developers success in convincing people that paying rent was dead money and that buying a property was an investment... Neither of which are true.

Of course rent is not dead money, you need to live some where and renting is one option to consider. In recessionary times it offers flexibility and a low financial commitment. You can follow the jobs and at worst you’ll be out a few months rent.

If you were to be hard nosed about it and applied all the usual investment criteria to buying a property, you’d be forced to conclude it was a high risk investment offering a poor return given the risk.

For a Swiss I’d say there is little chance of financial ruin, although it probably won’t lead to great wealth. For an expat it very much depends on timing, if you cannot choose the time of your departure, it could do.
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Old 30.07.2020, 12:39
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Re: Apartment or What else? Any advice, Please.

In the 1960s and early 1970s getting a mortgage was out of the question for a normal family in Switzerland. 6.5% interest was the norm so this meant living on the minimum rest of the salary until something changed. We did once have a very good opportunity in 1969, a new 3 bedroomed house with a front and a large back garden for Sf.160.000. That was in Brutten just outside Winterthur. Unfortunately there was then no kindergarten or school anywhere on the horizon and buying a second car just wasn't feasible. So we had to say no. There was of course an upside, banks and other investments were bringing in between 4 and 7% so it was worth saving.
Today, all these years later and a widower I'm perfectly happy in my rented flat mainly because I have no Eigentum tax to pay, no repair costs, no replacement costs and the cleaning and polishing work is done for me. This always works very calming when I consider how I might be sitting in a property which calls upon my attention every five minutes.
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