Buy or rent in St.Gallen?

Real Estate
1

I was living in a one room studio as a student, now I am looking into moving into a 2.5 room, but not sure if I should rent or buy, or perhaps rent for 1-2 years more and then buy?

I did some research, but I am not familiar with the extra costs that come with buying, perhaps missed a few details, so would appreciate any outsider insight.

Comparison:
Renting a 2.5 room in St. Gallen city is usually 900-1100 CHF (+200 nebenkosten for me, but that should be the same regardless if I rent or buy), and buying similar apartments would cost about 350k.
With 20% equity and 1.5% interest rates, this would be around 900CHF monthly for the mortgage, so more or less the same as renting. -Given that there are no other costs-

The positive is that instead of paying for rents, I would pay into my own apartment, own it and also benefit from property prices going up. I would also be a bit more diversified and own a RE next to my stock portfolio, which never hurts, it’s a completely different asset class.

The negative is that I definitely do not plan to stay in SG for more than 5 years, but maybe even less, my current work in Zurich is very home office friendly, but who knows when I switch, in which case if I need to commute more often I would move towards Zurich. Or once my salary goes high enough then I would also move towards Zurich or Zug. (I would definitely not buy anything there tho, given the prices.) RE prices could also go down, but given how attractive Switzerland is as a country I don’t think it would be a major crash that would last for too long.

So sure, owning the apartment would make me a little bit more flexible, but I was thinking that I could rent it out for enough to cover the mortgage, or I could resell it later on, pay off the mortgage, which should be less than what I would have lost if I rented, since if I pay 50k into the apartment, that 50k is mine even if I still had a loan on it.

-Also, it is very likely that interest rate goes down, if I could get a mortgage for 1% for e.g then I would only pay 700, which would mean I could invest 200 a month more into my stocks.

2

Shouldn’t you count typically 1% of apartment value for maintenance?

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3

Few points to consider

  1. owning property also costs insurance and maintenance (approx 1% is commonly used as estimate)
  2. Real estate price might not go up as much
  3. What if real estate price falls?
  4. There is also capital gains tax when you sell RE so that reduces the gains too
  5. Isn’t there a thing called „imputed rental income“ ? Did you consider that ?
  6. How much returns would you lose on 70K that you would put into equity versus investing that money somewhere ?

This assumption of RE price goes up depends a lot on how long you own the property and how much you pay for it when you buy. It’s just like stocks - the market normally goes up over 10 year period but not every stock goes up

Interest rates going down doesn’t always mean mortgage rate goes down. It depends on what’s already priced in the mortgage market

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4

Depending on the canton, also property tax and co-ownership fees, which could be commingled with the 1% for maintenance depending on what they include.

It strongly depends on cantons but my recent experience is that there are non negligible front loaded costs (land register, notary and bank taxes/fees). I haven’t checked for St.Gallen but if they apply in a significant manner, it would make ownership for only a few years not very attractive. Tax advantages deploy themselves more with time, real estate is a long term investment in my opinion.

I’m surprised you made your calculations with only the mortgage prices and based your first assessment on that. Main costs of ownership can easily be found on the web (though it is worth it to ask for specific knowledge as you did) and could have been implemented from the get go.

In regards to price going up: that is the general tendency but a singular real estate asset is a very concentrated bet. Development in the neighborhood can reduce its attractivity and other things can happen that affect that piece of land specifically (or the local area) that may have negative effect on the price of it.

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5

Check this: https://rentbuy.top/

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6

Thank you, really useful!

7

Thanks for the reply! Well, I know that RE prices could also go down, but if the market conditions are not right I could keep renting it out in case I move to a different city. Considering SG has a lot of students, it would not be that hard to find tenants.

Didn’t know about imputed rental income, but I assume most of it would be offset by the tax reductions by the mortgage.

But good points to think about, thank you!

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8

My bad, I was using the UBS mortgage calculator, it turns out it already includes the 1%, so mortgage+interest+incidental expenses. So that all would be about the same or a bit less than the rent.

9

Don’t forget the opportunity cost of the downpayment you need to provide (20%).
Would you invest the excess cash into something else, or it would remain dormant, if you wouldn’t buy the flat?

10

All my savings are invested somehow. I would try to finance as much of my 20% as I can (max 10%) from 2. And 3. Pillarsy so lets say if invested they would yield 5% on average. On 70000 that would be about 300 a month, which is similar to what I would pay into the apartment monthly to increase my equity.