Since some time I have been thinking about the ideal property for me once retired. In general I must say I always questioned the (imho the somewhat exaggerated) desire of many people to own physical ground/land.
Many people do not have kids these days and to leave something behind for the children after death becomes meaningless.
In my personal situation I would like to live mainly outside Switzerland once I retire but do not want to close the door completely. I want to come to Switzerland whenever I want for vacations for instance. So I am thinking about some options:
Rent a small apartment (classical way). This would be something like CHF 1’500.-/month)
Buy an apartment (classical way). Probably > CHF 500k these days.
Try a way to have a place to live but now owning the land. The idea is that I would conclude a contract with the land owner (for let’s say 20-30 years) and construct on this something like a small house (there are some interesting developments in the category “tiny-/offgrid-housing”). This would be something like CHF 200-300k. The problem here is where to start (offers seem non-existant)?
Anyone has had thought about this?
I also need to think about if my official domicile will be Switzerland (for taxes, health insurance, etc…). But that’s another important question.
As far as buying an apartment, I would consider property in the right location to be a sound long-term investment, but only if you rent it out permanently, which would not work well with the visit/vacation thing. It is important to consider that the ownership structure for apartments (co-ownership) is quite a lot more complicated than owning a freehold house.
One option to consider would be to buy a place in a premium Airbnb destination. This would give you the flexibility of using it when you want to, while still earning some returns. Since you will not be living in Switzerland, you would need a holiday home rental management service or a local friend/relative to manage bookings, which will obviously cost.
For me personally, if my goal was to live abroad and visit Switzerland occassionally, I would simply rent Airbnb type places or stay at hostels/coliving, etc. There are plenty of affordable options. For keeping an official domicile in Switzerland, there’s always the option of family/friends. Just bear in mind that there are rules for how long you can keep your domicile here while being absent (and in the country you live in, how long you can live there without being considered a tax resident).
I would stay away from building/buying on leasehold (Baurecht). They are rarely a good investment. You can find some more info about leaseholds here:
My view is that when buying a house in essence you are buying two things, the land portion which has, historically at least, been appreciating and the actual construction which is always depreciating. Historically the appreciation of land was so strong that was overcoming the depreciation of the house, that is why you see overall increasing prices.
So based on my (maybe quite simplistic) assumption I would avoid giving so much money in a destined to depreciate asset. I compare it to buying a car actually…
Also I would depreciate the full cost down to zero at 20-30 years (what if the land lord doesn’t want to renew the lease?). So 300k (don’t know if a
house even if small today would cost you only 300k, some renovations are in this range…) down to zero in 30 years is CHF 833 p.m without including rent for the land, upkeep, insurance costs etc etc so don’t know if you would be better off renting and investing the capital somewhere else (?)
Last, I guess liquidity of these assets are not great, who would buy it from you if they have let’s say only 5-10 years of remaining lease?
I would also not go with a property in Baurecht. First of all usually you have to pay additional Baurecht interest, then after the Baurecht expires the property goes to the owner of the land and there is no guarantee that the owner is willing to extend the Baurecht period. So it is very well possible that you or your heirs will lose the property to the owner of the land. If you don’t have children then you might want to give the property to someone else but not the owner of the land.
Last but not least, it is almost impossible to sell a property in Baurecht because nobody wants to have a property that is in Baurecht. So once you decide to get rid of it, there will be major challenges.
Well you fix the terms before signing the lease, normally you don’t “give” the property/house to the owner, but he has to buy it back at the fixed terms.
Again this is not true, you can sell the house. Also at te end of the lease (normally 100 years) the owner will have to renew the lease or buy back the building.
Normally Baurechtsverträge are done over 100 years and have clear terms what happens when they end. Normally the owner will have to buy the constructions on the land to a fixed price or with some benachmark models.
There is always an option to renew the lease.
As you can rent a flat with only a fixed rent duration (1 Year or a few months/weeks) you can buy a property for 5-10 years with no problems.
The biggest disadvantage of leasholds is insecurity. Nearly all ground leases have adjustable lease rates. In Switzerland these typically follow regional land price indexes or the consumer price index. As land becomes more expensive, your ground rent goes up. This makes it very difficult to calculate the future costs.
Basically, what you get with a leasehold is the right to more or less do what you want to with the building (install a new kitchen, etc.). Often, the T&Cs of the leasehold agreement place restrictions on what can be altered (i.e. building a pool or an extension may not be allowed). Depending on how rents in the area develop, a leasehold could theoretically work out cheaper than renting a home in some cases, but this is very hard to calculate unless the lease rates are fixed.
If you just want a home to live in permanently and are willing to trade off a large initial lump sum payment against (significantly) lower rent, then you could consider a leasehold. But it is not an investment vehicle. I would put leaseholds in a similar catergory as cooperative housing (Genossenschaft).
Thank you for all the constructive comments. I think the lack of attractive advertised “deals” (at least for the private clients) reflects the problems associated with leaseholds.
I still have >10 years to go and I am confident that new housing models will develop. Of course, the financial aspects and security are important factors, but from an ideological point of view, I embrace the concept of leasehold.
Also, we still tend to think of housing as “for life” (compared to maybe our US friends). When we build, we build with concrete for eternity Some new housing concepts are much leaner and can be built (and also quickly dismantled) in a few days.
And in general, the Swiss don’t like to move, which makes the market a bit static.
For example, in the town (700 inhabitants) where I lived for over 20 years, there were maybe 5 changes of ownership.
Yes of course, what’s the point of buying a house or flat if in the end the land is not yours and you have to rent it and the landowner is not obliged to extend the contract? I don’t see the point of it, why then not renting the whole property in the first place?
Yes if you live in a caravan or you have a tiny house or IKEA house you might be able to move it to another place but if you build a regular brick and mortar house, this is not possible so you can’t take your house with you to another place. And then I don’t see the point of buying a property if you still have to pay rent for the land and there is no guarantee you can keep the place. Maybe your kids want the house later on and raise their own kids in it, but if the land owner says no then he will basically throw you out of your own building. So I really don’t see why someone would buy a house like that.
When I was looking around for a house/flat I was interested in an area where lots of properties are in Baurecht and basically first thing I checked if there is something mentioned about Baurecht then I immediately closed the tab of that property. And I don’t even have children but it still scares me away even if the contract is longer than my lifetime. I can’t get my head straight on why I should still pay rent if I own the building, it feels extremely unnatural.
So, I can also imaging it’s going to be very difficult or nearly impossible to sell a building in Baurecht because maybe many people have similar reservations like I, especially those with children. The only case where I can imagine that someone buys a property in Baurecht is when someone really really wants a house but doesn’t have the money to buy a regular one without Baurecht. So even if you want to move and sell your property, it’s probably going to be very hard or nearly impossible.
eve with children, say i buy a flow now your child can live the whole life in the house before it has to be extended. I think a LOT will happen over the span of those 100 years and you can sepculate a lot about what happens, but no one knows.
Also a building 100 year old need so much repair and retrofitting that its often convienent to just build something new anyway, so the argument “to leave something” for your children is just wrong.
At the end this is a personal choice, maybe a gamble and i get a lot of points told here, but at the end, anyones guess is a good as mine.
Just keep in mind that the Baurecht contract does not get extended just because you sell the property to someone else. This means that if someones buys a house in Baurecht you’re just taking over the existing contract and that could mean you already may face the discussion in maybe 30 years, maybe in 40, 50, or 60, depending on the contract.
True. In my experience most buildings need fundamental maintenance after 40-50 years like the roof, facade, windows, floor heating etc.so either you decide to “invest” and maintain the property or pass it on to children to renovate/rebuild or sell to an outstanding entity.
Buying in Baurecht is the most terrible financial decision you can make. I’ve actually written an article about it. Essentially, you’re getting a terrible deal because you’re buying a depreciating asset (the building) while leasing an appreciating asset (the land). Plus, you’re putting yourself in a bad situation when the lease contract terminates because you have essentially no leverage and are forced to accept whatever terms the land lord (the real one) will offer you.
This. Sometimes the terms are terrible, for example in Rheinfelden AG where basically everything is in Baurecht. The 90 year contract will run out in ~2055 and it states that the landlord is able to buy off the existing house for the price it was build in ~1965. Our bank found some documents that go back that far and it looks like the landlord will be able to buy off all houses for 120-180k. Currently they are sold for ~800k.
Sounds like a perfect deal for the land lord (or his/her relatives). I’m wondering if somebody has considered that for passive income. I know that also in my family there is some pieces of land are managed and not used. Could be interesting to look into this closer even if these pieces are far away from any city but who knows how Switzerland looks in 50-100 years