To me (and most members of this forum I presume) it is a given that the money would be invested - mostly in stocks. But you are right, for ppl not investing, buying becomes the better option.
With the rather likely low(er) stock market returns in the next 5-10 years vs. what seems to be still increasing house prices in CH for the next 5-10 years - the scales might be tipping towards buying?
Playing around with some of the more advanced buy vs. rent calculators, it becomes obvious how a huge impact the assumed housing price increase has on the outcome. Eg going from 1% to 2-3% assumed yearly housing price increase completely turns it in favor of buying.
Regarding your point about with family there is an increased need for bigger housing. Playing the devils advocate here, do you think the financial spect of renting vs. buying changes when the size of the apartment/house increases?
True, but is it realistic to make eg 10
years in a row maintaining renovations that are equal to Eigenmietwert? Or do you essentially run out of things to maintain? (Asking because I honestly don’t know)
For a 1.5-2 Mio house the yearly Eigenmietwert is something like 40-50k I presume.
Buying real estate with mortgage has proven to have lower volatility than investing in stocks. The majority of people stay away from the stock market. Not having that option, buying real estate seems like the best bet.
For me to really feel like I’m financially independent and ready to retire, I would need to own a piece of land with a house on it.
It’s just such a paradox that looking globally, many of us here in Switzerland are very rich, and would we able to afford great houses with big plots of land in most corners of the World, with no mortgage needed. Even anywhere around the border you just need €300’000 for a house. Just here in this country where we decided to live, work have friends and family, you need at least 1.5m to find anything, and that’s in a remote area.
Also once the pension funds reached the max quote of RE they can own we will see the big question “who is buying the 2.5% net yield properties”. And once no buyer is found we know what happens next…
I would really like to have my own place, just from an emotional view.
But RE is just crazy overpriced in Switzerland. Could have bought my dream house in a good location 10 years ago for 1M, now it’s closer to 2M.
I could settle now for a more remote area, but you’re still looking at 1.5M. While I could easily save 300k in the next 3 years, there is no chance that we’ll get to 260k gross income to even get a mortgage.
That’s why I’m fully invested in stocks. We have a nice 3.5 room 115qm apartment, which is good enough for now.
Agree. Interest rates are central to real estate prices. You have to ask yourself: does it make sense to only have to pay 1% annually to use someone else’s money? The interest rates in many western countries are low, meaning that spenders are prioritised over savers. Low rate opens way to less financially sound investments. This means misallocation and waste of resources. Who gets the short end of the stick? People holding cash, so mostly current and future retirees, who didn’t invest in real estate.
What do you mean? Is there a maximum real estate allocation that pension funds are legally obliged to follow? Even if that’s the case, has the actual allocation been increasing over the last years? Has it been getting closer to the threshold? But yeah, I think demographics are also key to understanding this real estate puzzle. Right now we are experiencing a rapid increase of the age dependency ratio, and it’s fuelled by more and more people entering retirement age.
They are at the threshold, in the past they could buy more and more since the Stock part increased without needing to add money. So if you consider a plunge in the stock market, some funds might have to rebalance and sell RE or add capital in the stock market.
But they will not beablte to buy at the same rate.
You have to ask yourself who is the buyer of the properties in future, And im not talking about the single family homes but the 25m+ RE.
A few of my (Swiss) friends who own houses and mortgages (managed to buy 3-20 years ago) have enjoyed a nice ride up and say that all the indicators show that this will only continue. They say it’s impossible for real estate prices to drop more than 10% from where they are now. When I hear this I really wish for a spectacular collapse which would make people work crazy overtime just to pay their interest.
But realistically, if someone has a 10-year mortgage with a FIXED 1% rate, are they at any risk? OK, if in 10 years their property is worth 50% of what it is now, they will have to use their savings to pay off the debt, but they will have saved a lot in rent, so it’s still not tragic. What else can happen? What if a bank that lends them money went into financial trouble, like bankruptcy? Is there any situation in which they would have to give back the money before the fixed term expires?
No. So for the next 10 years they should be fine.
Plus they have a hedge against (hyper)inflation.
Apparently there’s so much (printed) money in the world that for years you can borrow at 1%. If this persists for much longer, prices (both real estate and stock) can only keep increasing.
I’m also renting by the way, for all the same reasons mentioned above…
Interesting. So pension fund allocation thresholds can somehow link the stock market with real estate. A plunge in stock market would trigger a sell-off in real estate, which would also cause a plunge in real estate valuation for the entire market. If the drop was high enough, this could cause the LTV of some people to go over 80%, so the bank would ask them to come up with some capital to re-cover their loan. This could trigger another sell-off on the stock market, as the people would be looking for cash. Sounds like a potential feedback loop.
Yes this is the way.
feedback loop on the upside often means feedback loop on the downside. Since when then lots of normies sell stock to cover the mortages, Funds again need to unload RE to rebalance…
Isn’t it the wrong framing? And the main reason many people’s decision making is impacted?
You can also see it as an investment in RE, paying market rent to yourself with all the costs for maintaining the property. In practice people get a net 1 or 2% max return, right? (+Leverage)
Money is an IOU. You do your work, the one who receives it, owes you. But instead of giving you something material right away, they hand you over an IOU note they got from someone else. So, eventually, someone else will have to pay you back that debt.
On top of that, there is Credit. Some people want the material stuff now, some want it only in the future. You can sell your IOU note for the promise of getting even more IOUs in the future.
So if more money or credit is being “printed”, but the total available labor is not increasing, this IOU note can buy less and less labor. Real estate provides a steady cashflow through rent, so it’s a popular choice for the ones who want to delay their consumption.
Sorry if it’s obvious what I write, I just like to “think out loud” to organise the thoughts in my mind and make sure I still understand what’s going on…
Risk of bankruptcy is low especially since SNB has obliged amortisation to 66% in 15 years. Owners will likely live a normal life and retire at a normal age
They would likely lose out on other investment opportunities. Human nature means most people focus on reducing costs not on growing income. However we are in a FIRE forum and we are a group of mostly like minded people who think differently which is why opinions here differ from the mainstream
If you want a different result versus a « normal life » you have to do something differently
Hypothetically speaking, what if there is deflation? I guess having a fixed 1% mortgage during heavy deflation would not be so great? Let’s say we have an AI revolution and robots replace humans in many jobs, dropping the costs of many goods and services. I guess what hedges real estate against deflation is scarcity. If everything is suddenly cheaper, what will people want to spend more on? I guess better accommodation and holidays.
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