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Old 24.08.2021, 14:35
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Paying for apartment house under construction - Construction Loan

1. Is it typical in Switzerland that when buying new flat in apartment house that is being constructed, selling real estate agency demands tranches of payments after completion of construction phases? For example:
20k cash downpayment
30 % abzüglich Reservationsgebühr bei Beurkundung
30 % abzüglich Reservationsgebühr bei Rohbauvollendung / Dach aufgerichtet
40 % abzüglich Reservationsgebühr bei Bezugsbereitschaft
Or rather typically buyer pays cash downpayment and then rest when apartment is ready to move in?
2. In order to finance purchase of apartment that is being constructed, Construction Loan is need which has higher interest rates and fees than regular mortgage. I can see the risk that if there are delays in construction and first tranches were already paid from Construction Loan, I need to pay for extended duration interest rates and my current rental contract. Is there a way to protect against it?
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Old 24.08.2021, 15:19
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Re: Paying for apartment house under construction - Construction Loan

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1. Is it typical in Switzerland that when buying new flat in apartment house that is being constructed, selling real estate agency demands tranches of payments after completion of construction phases? For example:
20k cash downpayment
30 % abzüglich Reservationsgebühr bei Beurkundung
30 % abzüglich Reservationsgebühr bei Rohbauvollendung / Dach aufgerichtet
40 % abzüglich Reservationsgebühr bei Bezugsbereitschaft
Or rather typically buyer pays cash downpayment and then rest when apartment is ready to move in?
2. In order to finance purchase of apartment that is being constructed, Construction Loan is need which has higher interest rates and fees than regular mortgage. I can see the risk that if there are delays in construction and first tranches were already paid from Construction Loan, I need to pay for extended duration interest rates and my current rental contract. Is there a way to protect against it?
It's not unusual to ask, not sure I would accept those terms. I would hold 10% back until all the common parts have been finished, gardens etc.

Construction loans are more expensive as the risk is far higher
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Old 24.08.2021, 15:36
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Re: Paying for apartment house under construction - Construction Loan

I have not seen this myself, although I've heard about it from friends and colleagues.

The places I bought, and also the ones I have seen do not have this. Usually you have to pay the reservation fee, then 20% on signing, and the rest when it's ready. So the mortgage doesn't kick in until the end.
Thus the seller has to finance the construction instead of you. They would be the one going to the bank for a construction loan instead of you, but they would have built in the financing costs into the cost of the apartment. The question to ask is why did they not get financing? Is it because of their inability to get financing?

Let's say they are a reputable company who could get financing but chose not to, then they are simply passing on the risk and financing cost to you (but the apartment should then be cheaper).

The risk you should be concerned about is what happens if everything falls apart after you've paid say 60%. You need them to give you copies of all insurance policies, and also a performance bond or a guarantee from a bank/insurance company that you will get your money back or another company will complete the project without any costs to you. The insurance is for construction accidents and the bond/guarantee is for the event that the seller goes bust (while the project itself is running perfectly).

This is just from my experience - I am not an expert, you may need to get more professional advice - why not ask your bank?
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Old 24.08.2021, 19:16
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Re: Paying for apartment house under construction - Construction Loan

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1. Is it typical in Switzerland that when buying new flat in apartment house that is being constructed, selling real estate agency demands tranches of payments after completion of construction phases? For example:
20k cash downpayment
30 % abzüglich Reservationsgebühr bei Beurkundung
30 % abzüglich Reservationsgebühr bei Rohbauvollendung / Dach aufgerichtet
40 % abzüglich Reservationsgebühr bei Bezugsbereitschaft
Or rather typically buyer pays cash downpayment and then rest when apartment is ready to move in?
2. In order to finance purchase of apartment that is being constructed, Construction Loan is need which has higher interest rates and fees than regular mortgage. I can see the risk that if there are delays in construction and first tranches were already paid from Construction Loan, I need to pay for extended duration interest rates and my current rental contract. Is there a way to protect against it?
I paid in tranches just the way you state.

At the time I was with UBS who wouldn't help with financing the tranches at a competitive rate and were only interested in the final mortgage. I moved to the ZKB (Kantonal bank) who were happy with a bridging/building loan at the same rate as the final mortgage.

The biggest risk is that the builder/developer goes bust and a history of happy customers from previous projects will help - if the have any...
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Old 24.08.2021, 21:22
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Re: Paying for apartment house under construction - Construction Loan

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I paid in tranches just the way you state.

At the time I was with UBS who wouldn't help with financing the tranches at a competitive rate and were only interested in the final mortgage. I moved to the ZKB (Kantonal bank) who were happy with a bridging/building loan at the same rate as the final mortgage.

The biggest risk is that the builder/developer goes bust and a history of happy customers from previous projects will help - if the have any...
That is awesome that you received construction loan at the same terms as the final mortgage. Congrats!
I found another investment on the same street 5 blocks away of the same constructed by the same building company and real estate agency. I need to find the tenants :-)
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Old 24.08.2021, 23:21
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Re: Paying for apartment house under construction - Construction Loan

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That is awesome that you received construction loan at the same terms as the final mortgage. Congrats!
I found another investment on the same street 5 blocks away of the same constructed by the same building company and real estate agency. I need to find the tenants :-)
Btw did you check with the construction company what happens if they go bankrupt and not finish the construction? Did they have any insurance?
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Old 25.08.2021, 00:43
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Re: Paying for apartment house under construction - Construction Loan

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The risk you should be concerned about is what happens if everything falls apart after you've paid say 60%. You need them to give you copies of all insurance policies, and also a performance bond or a guarantee from a bank/insurance company that you will get your money back or another company will complete the project without any costs to you.
This.

However, copies and whatever will probably be useless because the craftsmen and subcontractors have what's called BauHandwerkerPfandRecht. In short, if the main company goes bankrupt their rights on the value of the real estate, whatever its state, come first, its value can (and will have to be if they exercise their right) used to pay whatever bills are still open. In an extreme case pawp may (have to) pay them twice, first in cash and then by the real estate value they lay their hands on.

Caveat emptor. Caveat very very much.
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Old 25.08.2021, 07:46
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Re: Paying for apartment house under construction - Construction Loan

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This.

However, copies and whatever will probably be useless because the craftsmen and subcontractors have what's called BauHandwerkerPfandRecht. In short, if the main company goes bankrupt their rights on the value of the real estate, whatever its state, come first, its value can (and will have to be if they exercise their right) used to pay whatever bills are still open. In an extreme case pawp may (have to) pay them twice, first in cash and then by the real estate value they lay their hands on.

Caveat emptor. Caveat very very much.
That’s why you need a bond or guarantee. I had one from UBS and the other from ZKB. When something goes wrong the bank will pay me and they have to worry about their rights of getting the recoveries from the contractor.

When I asked for it, they were surprised because “nobody asks”, but it wasn’t an issue and I got it within a few days - seems to be part of their banking package. If the banks are willing to take millions of risks on them, I would assume they have done their due diligence.

I did a quick google on baukaution:

https://www.allianz.ch/de/geschaefts...ugarantie.html

Some other sites should have this in English I think.

Last edited by axman; 25.08.2021 at 07:55. Reason: Added a link
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Old 25.08.2021, 13:46
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Re: Paying for apartment house under construction - Construction Loan

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When I asked for it, they were surprised because “nobody asks”, but it wasn’t an issue and I got it within a few days - seems to be part of their banking package. If the banks are willing to take millions of risks on them, I would assume they have done their due diligence.
... and if not it's their problem.

Do you remember how much it cost you? (relative to the amount insured)
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Old 25.08.2021, 19:57
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Re: Paying for apartment house under construction - Construction Loan

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... and if not it's their problem.

Do you remember how much it cost you? (relative to the amount insured)
It didn’t cost me anything. The guarantee is taken out by the seller and given to me. So they paid.
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Old 27.08.2021, 19:00
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Re: Paying for apartment house under construction - Construction Loan

So the real estate agency informed that:
After the notarization, I will already be registered as the owner at the land registry. So this should be my security. The tranches that I'll pay correspond to the progress of construction. So in reality my apartment has the value I pay for.
My comment: who will buy from me the unfinished apartment?

I also received financing confirmation from the construction company's bank were bank commits that traches from people buying the apartments will only be used for spending related to the construction
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Old 27.08.2021, 19:25
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Re: Paying for apartment house under construction - Construction Loan

This is a common response.

I bought the land first before the building. The land represented about ⅓ of the total - 550sq metres.

Their theory is that as you pay in tranches if they go bust you have not committed all your money…
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Old 27.08.2021, 19:28
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Re: Paying for apartment house under construction - Construction Loan

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This is a common response.

I bought the land first before the building. The land represented about ⅓ of the total - 550sq metres.

Their theory is that as you pay in tranches if they go bust you have not committed all your money…
Owning the land is 100% the way to go & gives you a high level of security. Hopefully the architect only signs after work is done to the value being paid by the instalment
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Old 28.08.2021, 16:30
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Re: Paying for apartment house under construction - Construction Loan

OP wrote: "who will buy from me the unfinished apartment?"

Did the construction company give you a reason to make you hypothesise here?

If you are not sure or cannot understand the documents and plan to hand over your life savings, seek professional advice and assistance to help with your due diligence.

FYI there is a public registry through the Betreibungsamt where you can identify whether your counterparties have debts or not. Maybe you can start there with your dd.
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Old 28.08.2021, 17:16
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Re: Paying for apartment house under construction - Construction Loan

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FYI there is a public registry through the Betreibungsamt where you can identify whether your counterparties have debts or not. Maybe you can start there with your dd.
It's not a list of debts, just a list of debts in default which is very different.
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