We don’t know what the future will hold. With such a high inflation, interest rates won’t stay that low.
It’s just crazy what people are paying for real estate! They sell apartment blocks with a 2.5% net yield. Yesterday I saw one for 12.9 million with a 315k net yield. What will happen to the price if interest rates increase by 2%? 315k / 0.045 = 7 million?
Who’s buying those? Would pension funds be happy to get a 2% cash flow without leverage? (I would guess probably, I’d need to see what mine does)
there was a Finanzfabio podcast (Swiss German) discussing with a Pension fund admin guy, which confirmed that pension funds buy these properties despite the low yield. Its crazy indeed.
Do you guys know zwangsversteigerung.ch (official foreclosure portal for CH)?
Does anyone have experience on how the prices develop here? Can one catch objects deep below market prices (as advertised) or are the good ones just go at market or above market prices even?
I know for a fact it is possible to get something below market price. But you will have to be very patient, and look for properties in regions where not many people will show up at the auction.
The alternative investment for a pension fund is primarily bonds. Bond yields are so low that a 2% cash flow looks good by comparison.
In the scenario where interest rates rise, I assume the property goes from 12m->7m. I assume the thinking is that the investment horizon for a pension fund is so long they will hold and rents and property value will increase in the very long term. Alternatively, the Pension Funds are desparate and have nowhere else to invest their money. Probably the answer is somewhere in betweeen, either way the risk to the economy feels huge…
That’s not really the case, they can have up to 50% equities, 15% alternative investments like Private Equity, Senior Loans, etc., 10% infrastructure and starting next year 5% in swiss private equity/debt in addition to the 15% alternative investments.
That’s mostly the case, their investment horizon is extremly long.
You can buy below price, but you need to be able to basically pay in a couple of day max after winning the auction,and you get very little time to actually visit it, so if there are problems…you get them as well.
Did not want to start a new thread on the topic, let’s see if my questions can be answered here.
Over the last years I’ve read quite a few threads here on the forum about buying vs. renting, and I have the feeling that the consensus on the forum is (unless changed in the last ca 6 months):
Thus we are for the moment sticking to renting, as it leaves us with more flexibility.
I’d have some specific questions:
I see more and more threads about mortgages and other topics related to owning a property. Has the consensus shifted towards buying here?
I have the feeling that everyone around me, who are financially able to, are now buying apartments/houses. For all of these people it seems like a no-brainer to buy and that buying is obviously cheaper in the end. Am I missing something, or is it simply that I’m in my mid-30s and that is the time when the Swiss buy their houses?
Do you have a simple explanation that can be used in discussing with them to highlight that buying is not always/often obviously cheaper?
Does high incomes have a significant effect on the cost of owning a house/apartment? I’m naively thinking that with high income your marginal tax rate is higher, and thus e.g. the Eigenmietwert would hit you harder?
Indeed it depends. My take out of these discussions was that renting is better than buying IF you invest your potential downpayment and amortization money in assets with high expected returns, i.e. stocks. If you don’t dare and you let your money rot in a bank account, then you better invest at least in own lodging.
Another thing, and this is also my opinion, is that once you are a family with children, priorities are changing. You not only need more space, being independent from a will of owner of your lodging also very valuable, despite of very high level of tenant protection in Switzerland.
That is true, but so is the fact that renovations and other costs to maintain (also increase in the case of energy-requirement improvements) your house are deductible, so having properties gives you more options to lower your tax burden.
I think @Dr.PI has a very valid point, and I see that self-fulfilling approach with my friends: There are those who want to buy, therefore keep their savings in cash (many over years), and hence it financially makes sense to buy. And there are those who came to realize that renting is cheaper (or that they are never going to be able to afford what they are looking for), therefore invest their money in equities, and hence it financially doesn’t make sense anymore to buy anyway. I myself concluded that I keep my money invested, still look around in case an opportunity comes around, but acknowledging that this is unlikely ever going to happen.
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.
The housing market can go down too, look at the history.
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.
Will be interesting to see what happens if interest rates go up by a small amount 1% - or in other words a ~100% increase vs today
prices are totally propped up by interest rates
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.
