Last time I checked, in the long run the S&P 500 yielded 10% nominal return in USD and SPI yielded 8% nominal in CHF. Adjusted for inflation, both would probably sit close to 7% real return. But ok, maybe if you count the net, after tax income, then it goes down.
But let’s not get sidelined by this one number.
What I think we can agree on, is that over the last 50-70 years, our productivity has grown, but our purchasing power of real estate has shrunk. Yes, it is possible to get a mortgage at the low interest rate not seen in the past, but still, you have to carry this burden of owing many times your annual savings and eventually pay it off. It just seems broken to me and I wonder what exactly causes it and where’s the fix.
If rental ads disappear after a couple of days due to high demand, then I don’t think these people are at the limit of what they can afford. If there’s a flat going for 2’500, maybe I would be willing to pay 3’000 for it. But I don’t even get the chance to bid. Is that not obvious? If hundreds of people apply in a day, it’s a clear sign that the price is too low.
Let’s not talk about your feelings but about the observable facts. Applying for a flat in Switzerland (at least in the Zurich area) is difficult. Most of the time you don’t get a reply. Hundreds of people are willing to pay the price that is advertised. So I wonder why this price isn’t higher. Just looking for a straight answer.
Well, we’re getting somewhere. But can you point me to a source where I can read up on that? Like, how is a pension fund or an insurance company restricted in setting the rent height on the property that they own?
Aren’t these socialist policies slowing down further real estate development? If you can’t set the rent freely, maybe you will think twice before you invest.
Productivity has nothing to do with the real estate. There are more people on earth and, I don’t have numbers at hand, but from what I remember, the lodging area occupied per person keeps increasing and increasing.
(Did we have this discussion few years ago already?).
Even during the last 50 years or so; in 19th - early 20th century it was rather common in cities that a multigenerational family would occupy one room. So we can say that unlike all other resources, living space is getting less and less available. So you shouldn’t be surprised that our Lord the Market makes it expensive!
Of course there are areas with a huge demand and those with a moderate one. Even in Switzerland, you can buy or rent lodging at very affordable prices in small villages of Canton Jura. But that’s not what you are looking at.
Fair point, I just couldn’t help myself I won’t mention it again.
Correct me if I’m wrong, but is it not fair to look at the price of real estate in the place where you live and work? What good is a flat in Jura if you work in Zurich? A couple living in Zurich, each earning 120k (240k in total), could afford a mortgage of 1m. They would probably need to get married first, or just trust each other enough to go into a business deal of their lifetime together. Being good earners, they could pull their pension money and savings and collect 500k. So they could afford a 1.5m flat in Zurich. Last I checked, this is barely enough to afford anything nice. If they were looking for a house for that money within the boundaries of canton Zurich, they would be choosing from scraps. I just find it a frustrating reality and I wonder if there is a way out.
YES. And I explicitly asked not to write anything more about it. I don’t want to have to clean up this thread. Just please let’s focus on real estate.
Do say more! I was not happy about that merger deal betwen CS and UBS. Just creating a bigger problem, kicking the can down the road. Is UBS big in mortgage business? I always thought the biggest players are SwissLife, maybe Raiffeisen?
It also made me thinking about long-term effects for this on Switzerland. Not to be off-topic - I think Switzerland can lose a lot of its “charm” as regards banking safe heaven etc., which may affect high-earners/wealthy people immigration, which finally may affect housing market, amongst other things. Hopefully I’m too pessimistic here, as CHF doesn’t seem to be particularly weak after what happened…
What we saw last week was that once a run starts there is no stopping it even if depositor’s initial fears were not rational
Even if it not the biggest mortgage lender any noise about UBS’ Balance Sheet seems something to avoid at all costs right now. UBS is twice the size of the Swiss economy and maybe too big to be saved (does anyone really know yet?)
When I arrived in Switzerland 7 years ago, there were 8 million inhabitants in Switzerland.
Now we are closing 9 million inhabitants.
So that’s an increase of 12.5% of the population in 7 years, or roughly a million person. As immigration is work-based, those are usually qualified people, coming mainly to the big cities: Zurich, Geneva, Basel, etc.
Given the current state of Europe, I don’t think this trend is going to reverse soon. And I don’t think either that housing supply is going to catch up any time soon. Yes they are building a lot of housing (have you see the evolution of Manegg in Zurich over the last five years?), but I’d be surprised if that’s enough.
If that’s really the case, I don’t think that any rate move from the SNB will really change housing prices because the main driver will be a lack of supply.
I have already seen this movie play out before in Paris where there are similar dynamics (that’s where most of the qualified jobs are, there is a lack of housing supply, etc), and I saw the outcome:
building prices went up and up: only the really rich can buy something in Paris (keep in mind that housing prices are somewhat similar with Zurich, but salaries are 2.5x lower)
people are economically forced to either settle for a tiny surface (I doubt this will happen here, i think there is even a legal minimum surface per inhabitant), or to find an apartment/house farther and farther from the capital. What the ECB did in the last 25 years was completely irrelevant to the local situation.
So if I interpret this right, then there are no signs why the trend should reverse. So the people who thought in 2020 that stuff was too expensive and they’d rather just wait, 3 years later got hit with a double hammer: prices have gone up by 20% and that mortgage is not going to cost you 1%, now it’s going to be 3%.
I guess the solution is to work, work, work then save, save, save, and get out of here as soon as possible, if we want to have great living conditions.
I have already seen this movie play out before in Paris where there are similar dynamics (that’s where most of the qualified jobs are, there is a lack of housing supply, etc)
This is beside the core discussion but I would argue that Zurich and Paris hardly compare.
France is a lot more centralized than Switzerland
The Parisian real estate market is a lot more liquid since buying/selling your résidence principale is so much more common/expected once you’re in your late 20s - early 30s (my experience working alongside French colleagues who were earning decent salaries but also far from “rich”)
In fact this is what we did. Moved into CH in 2011 and then working + saving. Not crazily, we were living nicely, travelling etc., but still managed to save enough. When buying in 2021 I had very uncomfortable feeling of buying at the top, but it seems it was not the case. Of course it doesn’t mean that the prices will not go lower at some point, but so far we don’t regret our decision at all. What we regret a bit:
I was not investing the money during those years, as obviously for me it was too short-term + I didn’t have enough knowledge etc. In hindsight - we would have of course much powder to put when the time came.
We took over the mortgage (4 tranches) of the previous owner. Immediate gain of CHF 39000 on house price (plus more or less 4.5% of those amount in addition considering all the taxes paid on top of this price etc.). For the part we had to take and blocked for 10 years we got 1.11%. Now those tranches are going to expire in few months (starting in November over half a year period). On Monday we were contacted by the bank who told us that due to CS events rates went sharply down so it may be a good idea to block them - eg. we got 2.12% for 4 years. The rates went back after, but we still have the possibility to get that deal, I will think about it over the weekend… If that rate would stay until 10 years after we bought the house, we would be around 14k worse than paying the full sum and blocking whole mortgage at 1.11% for the whole period. So not tragic (but of course we don’t know what will be the rates in 4 years if I decide to block now). I’m a bit leaning forward to blocking the rates, to get peace of mind - treat it as kind of insurance. Plus - until 5 years after buying we are a bit more vulnerable to refinancing problems, as we used pension fund assets. In 2026 we will be in better shape, as we should be able again to use those assets in case of interest rates craziness etc.
Well, the key point in my post was about eventually moving out, leaving Zurich (or other expensive city where your work is). Go to Ticino or Croatia or somewhere else, where you can afford a house for a fraction of what you pay here for a flat. Retire or focus on remote work.
What really puts me off about investing in real estate is that either this huge mortgage is always in the back of your head, or you gradually pay it off and eventually you’re left with having 100% of your wealth concentrated in 1 piece of real estate. That’s a crappy diversification. I would be happy to put, say, 1/3 of my wealth in a house, but I’m not going to be worth 6 million any time soon, I guess.