Invest in real estate in or out of Switzerland?

Hi All,

This is a great forum full of expertise. My wife and myself have a good amount of experience in RE (currently own 2 x houses, but all outside of Switzerland). We are at the position where we think we should invest in Swiss RE, but in this forum I have read a lot of hesitancy about RE. So I thought this would be a great place to test our plans. The proverb - Plans go wrong for lack of advice; many advisers bring success. So hoping you can assist with good advice and to alert us if there is something we are overlooking :slight_smile:

Here’s the context:

  • We are non Swiss and non-EU. We have lived in Switzerland for near 4 years. No kids.
  • We currently rent in Geneva. Nice apartment, but expensive - about CHF4000k. Yes, I know we can get cheaper, but to be honest, what we have is very nice and if we go to 2.5 - 3k, there is a significant drop in quality + space.
  • I work from home 100% (not COVID related, I worked from home before COVID), and my wife about 50%. Hence why we need quite a large and nice space, which leads to an expensive apartment.
  • We have permanent job contracts, managerial level positions, so not likely to leave Switzerland. However, if my wife loses her job, we have 2 months to leave the country (by law). From a RE perspective, this means that we need to look at both ownership to live, AND also to rent it out. So it needs to be a good investment PS. I know some people may say that in 5 years we can get a C permit, but unfortunately C permits are not possible for people of CDL visas. Even if we live in Switzerland 20 years, there is no C permit or citizenship. Even in 20 years, we always have this risk that if my wife loses her job, we need to leave. So the property needs to be a good investment
  • From a bank perspective, we are pre-approved for a mortgage (one of the major Swiss banks). It is also no problem if we leave the country according to their advice.

Why RE in general?

  • As mentioned, we have 2 x properties already outside of Switzerland. This experience has given us a positive experience of real estate. Both properties have rent more than the cost of the mortgage (P+I) plus all expenses. In other words, they all generate profit and they have gone up in value a lot
  • Leverage. We can turn 200k of deposit into a 800k house. Ok, we put 200k of deposit in shares and they go up 10%, that is 20k profit. The 800k house only has to go up 2.5% to make the same profit. So there is higher potential upside (if prices rise of course)
  • … and the other pros for real estate that I don’t need to mention here.
  • I will note we are not only in property. We do have a good share portfolio, but we are heavy in property, and of course debt with them! This could be precarious if interest rates go up, but we could go up to 5% without any problem.

Swiss RE / outside Swiss

Of course, please let’s know if you disagree with the above, but in our minds, the decision is not RE, but where RE. We can also get loans in other countries of 80-90% easily. We also obtained pre-approval for France, Portugal, etc. But we are really unsure if buying in Switzerland is the best move.

Benefit of Switzerland.

  • Paying 48k / year in rent+charges makes no sense to me. The reason to look at Swiss RE is at least we will be paying for a house as opposed to rent.
  • Very stable country and high demand. We CAN buy as non-EU now as we will live in it (non-EU allowed to purchase as a residence). This is not something we could normally do. Unique opportunity to buy in Switzerland now, and have an investment property if we leave (also allowed from my understanding. The restriction is in ‘buying’ not ‘owning’)
  • We can pledge our 2nd pillar to make up 10% of the deposit (uses less capital)

Cons of buying in Switzerland.

  • We would need to buy out of Geneva. Actually we are looking at Saint-Cergue so we can have a detached house. So we need to add in car costs which we don’t have today.
  • Capital growth. Is the market overpriced today. Properties stay in the market in Saint-Cergue for just a few days. Could be a good thing or a bad thing
  • FX. The deposit would come from abroad and convert to CHF which is arguably overpriced at the moment. If the CHF falls, we could lose a lot of investent
  • $ goes further abroad (you can buy something very good for 750k in other countries in Europe). Can make an investment property that pays for itself, while having flexibility in Switzerland of renting. Maybe could decrease rent costs in Geneva slightly

A neutral. When we do the maths of a house of 750k (achievable in Saint-Cergue), add in a car, maintenance, etc. It comes to 4k / month. So we are neutral cash position to what we are today. But we are paying off a house.

A long post and a BIG thank you for reading. I thought it best to provide as much context to show we have thought it through. We would love to hear your comments.

Thanks! :slight_smile:

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FYI that shouldn’t matter, unless you like gambling on FX.

This might be the biggest risk, depending on how much is paid on the mortgage. I assume you’re currently getting a salary in CHF, but that would stop if you leave Switzerland. At this point your income would no longer be anchored on the local market, which can add quite a bit of risk.

Also are there different requirements on how much you have to pay for your mortgage if you’re renting vs living in your property?

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What are you home country ?

How are you tax in Switzerland (i see you have a CDL visa) ? Depending of your employer, the tax exemption is partial (salary income only) or total (salary + wealth + income from investments).

Do you want to buy a property as your main residency ? You can use your 2nd pillar. For investment purposes ? you cannot use your 2nd pillar and banks will most likely ask for a down payment bigger than 20%.

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Ahhh. This is an important point I should have said. The CDL is Type “R”, and that I have a “Ci” permit. In both these cases, we pay full tax - full income tax, wealth tax, etc… same as any other Swiss person, or B type or C type permit. We do a tax return as normal… So no tax benefit unfortunately.

House would be our main residence. Goal is to take away the high rent we pay, and to be paying off a house so we build equity. However, we have the risk that we may leave Switzerland one day, in which case it we would keep the house and rent it out. We checked with our bank, and they are comfortable with this.

If you have a C permit, then you shouldn’t have any issues. If your wife has a B permit, that may be an issue if you buy as co-owners. The law is clear that B permit holders can buy a single Swiss property for use as their primary residence only, but AFAIK there is nothing clear about what happens when the B permit holder leaves the country. I assume they may be required to get a license for ownership of Swiss property as a foreigner, but I don’t know that for a fact. In any case it would be worth clearing this up at your municipal office, as there may be specific rules in different cantons, municipalities, etc.

HI Daniel, I wish I had a C permit. Unfortunately my permit is a Ci permit which is quite different - Permit Ci (residence permit with gainful employment).
For my wife, she has a CDL. However, we know it is ok for us to purchase with a CDL - Acquisition of property in the cantons of Geneva and Vaud by members of personnel of permanent missions and international organisations

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Did you see the thread “is Swiss real estate expensive”?

Apart from that, I do know someone living in St Cergue and working in Geneva… 1 hr commute each way, was quite stressful for them when they had kids at school. Suggest tomake sure you really like it there before buying

Hi Barto. The commute is a good point. The ‘mountain lifestyle’ we feel is manageable (hopefully!) as I work from home 100%, and my wife only has to go to the office a couple of days per week. Saint-Ceruge has also developed a school, etc. (We don’t have kids, but good to consider).

Yes, I did read the thread “is Swiss real estate expensive”. I think I read most of it, a long read :). However to me it seemed to be more about buying in RE in Switzerland vs other investments. Maybe I didn’t word my question the best. For us, we already own 2 x houses outside of Switzerland, and we want to make a 3rd RE investment. The big question to us is where - to buy in Switzerland, or to buy somewhere else?

The ‘somewhere else’ I believe has more capital gains opportunity, plus it is pure buy-to-let where the property should pay for itself. But maybe we should consider buying as owner occupy in Switzerland to remove our huge rent and maybe able to turn into a rental if we leave Switzerland… but the downside of not much capital gains, less flexibility of where to live, etc.

Another possible downside of buying your own property is that you might be driven by how much you like a place and not by its real value and end up overpaying for it.

hi Joe, in my view investing in property in CH is a huge play on interest rates. I would consider buying a house if I planned to live in it for 20+ years, but if you are doing it as an investment there are other options that are likely to be better for your wealth

Not to teach you how to suck eggs, the way leverage works is that if you borrow at below your investment return it boosts your return, if not the opposite applies. Gross rental yields (rent/ price) in CH are about 2.5% before costs. After counting typical maintenance / accrual for future repairs of 1% that leaves 1.5% (depends on the property but be concious most of us are over optimistic about costs because we are emotionally attached to the idea of buying property!)

It is discussed in the other thread, that analysts at swiss mortgage banks acknowledge that prices are being held up by record low interest rates. The situation is really unprecedented with so much central bank intervention. If rates increase by only 1% the financing cost for floating rate loans doubles from 1 to 2%. This is quite different vs going from 4 to 5% like what happened to our parents in the past. Sure you can fix your rate but think about new loans and the rent vs. buy calc for future buyers and the resulting impact on prices

On the other hand the banks don’t forecast interest rates to increase “soon”.

I am not sure where you have your other properties. I am familiar with UK and US markets, the market here in CH is totally different because tenants have strong protection, rents are controlled, and in addition there are tax disincentives that discourage ownership - you pay taxes on the value of the property and deemed rent, how much varies by canton and Geneva seems to be worse than others, Vaud not so bad.

Another point is that pension funds are highly active in the market for rental buildings, which influences rents

If you are at a cash neutral position, but:

  • have to move into the middle of nowhere vs living central Geneva
  • take on a huge mortgage
  • take on a huge “rising interest rate” thing
  • don’t actually need a detached house compared to the current flat you rent
  • and run the risk of needing to leave the country / flexibility of accommodation
  • and run the risk of depleting your pension pillars
  • and might run the risk of FX conversion

I don’t quite see the upside?

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Hi Barto
You raise really good points, and to be honest, seeing the 1 - 1.5% does put it in a different light.
I would hope that it would be a house for 10+ years, but due to the precarious VISA/residence permit situation, you never know, and that is a (big) risk. If it wasn’t for this risk, I would feel with good certainty that we would live in it long-term, but we need to plan for the case if we have to leave.

One downside I feel about RE, I think this is general for RE globally, but especially in Switzerland, is it feels like we would be purchasing at the top of the market. UBS indicates the bubble risk, and on practical terms, properties are only on the market for a few days with little/no negotiation room. I do agree that it is due to the low interest rates primarily (although the RE agent says it is COVID and people wanting to move to the countryside).

I read a report recently (I wish I could find it) and they looked at all the different correlations to try to explain the increase in property prices in Paris. Some people say it is population growth, other factors, etc… but if I recall correctly, the only strong correlation was interest rates. As interest rates go down, Paris property prices go up.
I probably sound like I am arguing against myself, but that may be a good thing. We had very good experience in past real estate capital growth. But as Ray Dalio mentions, we run the risk of thinking the past will be an indicator of the future.

Prices globally have gone up over the past 15 years whilst there has been huge amounts of money printing and low interest rates

Real Estate cycle has always been boom followed by bust. If you don’t have a high rental yield then you don’t have strong downside protection against any bust that comes

I agree especially in Geneva. House asking prices near me peaked this summer to crazy levels, some sellers were trying their luck and for some it worked. If I had 10$ for every time someone told me “it is cheaper to buy because interest rates are so low” I would be very rich. It feels like getting stock tips from your taxi driver which is usually the time to be fearful. Indeed I can now see the same properties still for sale at lower asking prices (but still too high relative to rent in my pov)

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Although cashflow neutral, could I propose the upside that in 20 years (loan term), we own a house and have no more rental payments? I guess this is the classic own vs rent argument.

There is interest rate risk, but wages go up too - the inflation eats up the repayments over time.

On the flip side, our rent has gone up 100chf / month each year (part of the original lease agreement). So we have a cost (owning) that slowly reduces and is ‘nothing’ in 20 years, and rent that slowly increases and you always have it.

Over simplified and there is maintenance, etc. But this is the big upside I see. Owning something as opposed to paying 48k a year in rent. Maybe that is the key motivation.

Is your contract with an official estate agent?

I do not know the specfics but it sounds like you may be getting taken advantage of. In general in today’s market it is customary to ask for rent decreases. Rents are controlled and tied to average interest rates which have been declining in recent years. I would question if this 100 fr increase is allowed legally - perhaps someone on the forum can advise.

International assignees often get screwed over in the Geneva rental market…

Yes. It was a lease take over (bail) and it was part of their contract and part of our contract.

Whether it is ‘right’… that’s probably the big question.

Hi Joe,

If you are considering moving to St. Cerge, why not try to rent a house there first?

It feels like you are comparing potatoes with Oranges. A house, or an appartement by the standards you are living in Geneva town or surrounding towns won’t go for under 1.5M.

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Yes it is oversimplified. You said it yourself, paying 50k pa for a lease is painful. But so is paying 50k pa on your house AND losing all of the benefits of a central Geneva apartment.

“paying off a house” is not a thing in Switzerland, you never pay off a house practically and if you get a long term fix loan for 10 years, it’s cheap now, but there is a good chance you might see interest rates triple in 10 years, with property prices that have fallen or stagnated, and you still owe about 800k to the bank which now wants 24k instead of 6k per year for the renewal on the mortgage.

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Thanks everyone for the comments. I will admit that you are helping to change my mind regarding Swiss RE specifically. I guess it is a unique market where it is almost an incentive not to buy from a tax perspective.
I’m not 100% changed my mind yet to not buy Swiss :wink:, but if we don’t buy Swiss, I would continue to just buy property outside of Switzerland. I have one in Europe and one outside of Europe (sorry to be vague here)… but with the option of 90% loan in France (from what I have researched), and favorable loans in other countries (Portugal, Spain, maybe even UK), I do see potential. Our Europe property in particular has performed very well.
Interested in the group’s thoughts on RE outside of Swiss. Any major upside markets you believe there are in particular?

How big are the units you have ? And how much you pay for the management of the properties abroad + the rather difficult tax situation ? (income to be declared there and here, same for wealth, DTAs to manage)

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