Future of Home Prices in Kanton ZH

Has anyone thought about the long-term price development for Single Family Houses (EFH) in Kanton Zurich? These objects are selling for 2M CHF+, in locations with decent S-Bahn connectivity.

Assuming an average price increase of .8% over 30 years, such a house will be worth 2.5 Million. Who would be able to pay such prices in the future?

Do you think house prices will ever come down long term? Considering the scarcity of land, increase of demand etc.

2 Likes

High paid salaryman/woman or successful entrepreneur.

The trend in Switzerland is obvious: Single Family House with garden and no neighbours around are for rich people, not for average people. For them there are sometimes apartment or terraced house.

Another option is to buy in the countryside without decent public connectivity.

It will… I’m living in a “poor” french-side canton and the price of single house, terraced house, apartment are already skyrocketing and I won’t be surprised if they reach the overpriced house, terraced house, apartment in Geneva and the around the Geneva Lake…

5 Likes

An investor who wants to build 5-10 flats on the same land?

2 Likes

Already seeing this trend in few municipalities in Zurich Oberland. I assume some land parcels have zoning restrictions that prevents construction of Apartments. In those cases, probably Double Family Houses (DEFH) are feasible subject to regulation.

1 Like

If you buy a house, the price will be the land value (which is value of the biggest possible building on this lot minus the construction of this building) plus the value of the actual house.

1 Like

What about the future demography of the population? The boomer generation will die out, eventually.

1 Like

In absolute numbers, never. In inflation adjusted value, max I can see in a downturn is 10%. With fewer available options as no new affordable EFHs are build in areas well services by public transpo, higher population, more zoomers being able to afford it. Only way I see EFH stagnating in value is the servicability aspect - with a duplex or multi-family homes you have a serviced part often with heating and parking. In an EFH, you typically own everything. This aspect might not be welcome by larger part of the buying population, used to appartments and preffering the shared-areas approach to heating and parking. As always with real estate, location and other factors are most important. But on average, in connected area in ZH and stable interest rates going forward even at 2%, no.

2 Likes

Today, 2M with 80% mortgage would require an income of some 350K to pass the affordability check. That’s couples in their 30’s with a high double-income, that already managed to save the 400K for the remaining 20%.

If that applies to 10% of the population, that’s more than 100.000 potential buyers in larger Zurich. I guesstimated the number, it might be only 5%, but you get the idea.

And/or people receiving an (early) inheritance from their parents or grand-parents. Their own property increased in value a lot during the past decades. Many houses might never hit the market but are just passed down the generations.

In 30 years, who knows? There are demands to build more densely, which would make single houses more exclusive. On the other hands, lots of older houses will be on the market once their owners pass away or downsize. And people’s preferences to own or to have a garden might change.
Salaries will grow, as well.

2 Likes

It’s a tough decision for us, on the one hand having a own garden with a detached house is like a Luxury in ZH. However the capital downpayment is tied up along with a significant portion of one’s assets (assuming no amortization).

1 Like

It is. But that’s the same if you would rent such a place.

I’d consider it more of a lifestyle decision, not a financial one.
If you have the means to buy today, there’s a very high chance that you won’t need to worry about the housing market in 30 years.

3 Likes

Maybe a bout of wage inflation will make housing more affordable over time. Housing got expensive as it was inflated with low interest rates. Maybe we see some reversal of that as rates rise and people realise that the (temporary) interest cost might not be the only factor to consider.

I found it strange that people got fixated on “interest is less than rent so it is a good deal” forgetting about:

  • deposit and opportunity cost on that
  • paying back the principal (or part of it) and opportunity cost of that
  • Eigenmietwert
  • interest rate is temporary and likely to go up over time (and couldn’t go down further)
  • maintenance costs
  • other running costs
  • liquidity issues
  • all eggs in a basket risk
9 Likes

Excellent points @PhilMongoose. Based on few years of experience as an apartment owner, the Eigenmietwert is balanced out by interest costs and maintenance cost. Opportunity cost of down payment is the biggest concern.

1 Like

EMW is a cost. Interest is a cost. Maintenance is a cost. They don’t ‘balance out’ as such. If deductible costs are so big that there’s no incremental tax, then OK. But instead you’ve got still got a large net-of-tax expense.

1 Like

I have a bunch of friends in their mid to end thirties who are in the market or have recently bought a home. It’s either having high double income, receiving an early inheritance or using pension fund assets and often all of the above combined.

What scares me are the couples which are leveraged to the t*ts with 80% mortgage, cashed out both their pension funds and payed well above market value in a bidding war. See this in Zug a lot. It might work out fine, but what happens if another kid is on the way, a divorce or a major value correction comes up?

That being said, we also bough a house last year, but are going to play it conservative with max 66% LTV.

5 Likes

I would certainly not pay 2M for a house. It’s taking on a lot of risk. Maybe it works out in the end. Certainly for those who locked in historical low interest rates, it could still pan out for them.

It’s somewhat different in the UK where inflation has typically eroded the real value of debt. The Swiss Franc has historically done better in holding on to its value. That said, past performance…