Situation: Family with 3 small kids here. We have my single income as source, and it’s a quite decent one. We manage to put about 40-50k/year in savings, and have about 400k of clean available funds+250k in 2nd pillar.
Issue: these funds right now have not been invested very much, mostly as we have been wanting to buy a house. The problem is the single family houses are currently valued at insane prices wherever we look(which is the dubendorf-fallanden-maur-foch region, and is fixed for work & family reasons). Single family house with a garden seems to be around 2.5-3M, which places it just within reach of the 80/20 rule, but with nothing much to spare. The house itself seems to have little to do with the price, as only land seems to be the vast majority of the pricing.
Questions I have:
Is there any indication the market could have a bit of a price contraction in the future? Especially if the case where the US economy readjusts/performs poorly in the near horizon(think end of 2025-end of 2026).
From a financial point of view, our current rent is around 50k/year for a good that would sell for 3M. The comparis mortgage calculator seem to think that anything about 2M would not be a good idea financially, is that a realistic calculation?
Finally a more generic question. From what I understand, the market price are so high because of low supply and high demand. And the supply market is bound essentially by federal/cantonal land-for-inhabitation distribution? is this correct? I see vast amounts of unbuilt land in almost all cities here, and it feels like the extreme pricing is quite artificial.
Thank you for bearing with these relatively simple questions,
I see where you are coming from, and I don’t want for this to come as aggressive, but IMO it is just absurd to trust predictions of a bunch of people on an internet forum about macro economic trends. It would go in the same bucket of asking whether the stock market will go up or down in the next years, etc. If people here would actually knew this, they would not be responding to you but enjoying a drink on their private island
If 3M is the actual market price for the house you are living in (and you are not comparing apples to oranges by planning to buy a more expensive house w.r.t. the one you live in) then it means you are paying 1.7% of the house cost in rent yearly - considering maintenance and everything I think it’s a very low rent and (at least from the pure financial perspective) it would win over any realistic buying scenario - but you can use buy vs rent calculators to get a better idea
Absolutely. It is impossible to predict the future of a market. There are infinite factors that can affect the prices of real estate. That is why diversification generally trumps concentration over the long term.
With a rent of 50K per year, you are looking at a break-even point of around 40-50 years of living in the property before it starts turning a profit. That’s without accounting for the returns that you could be earning if your money were placed in a diversified investment portfolio (which could always include Swiss real estate funds). Of course, rents are likely to go up, which may reduce the break even point to 30-40 years.
Sure, there is a chance that the price of real estate will continue to grow, and the capital gains would reduce the break even period. But when you’re looking at an investment term of 30+ years, putting all your eggs in one basket is taking one hell of a gamble, in my humble opinion.
Thank you. That indeed makes sense. I was more curious about indicators that I would have missed or not known about, I’ll analyze the risk and possibilities of these by myself obviously. I was really openly trying to educate myself about more things than just interest rates(which there is plenty to read or guess about), and federal/cantonal/whatever policy, which I found to be something really obscure and undocumented, with no indication that this would change either.
Absolutely agree about the rent being very low, and this is not the first place I rent that has this situation. It seems to be quite a common pattern that older house(slightly higher heating costs) have a very discounted price compared to market value. A house we rented before was sold for 2.9M and the rent was 3800 for all the years we lived in it.(1937 house)
That makes sense. And that has been my policy for many years of saving, that it did not make sense. It’s of course quite frustrating for those of us that have a lot of desire to build things by themselves but that’s the reality of the swiss market…
It certainly is a gamble, and I don’t see it making sense financially currently. That’s why I was wondering if there’s any federal/cantonal policies that could eventually change that, groups pushing for that, against that, as it seems to be a common issue.(home ownership in ch being very low, and the amount of people renting being extremely high in areas like zurich) I certainly could imagine some initiatives pushing to open large amounts of lands to construction, therefore lowering the real estate market significantly. But I can also imagine that the swiss society likes this status quo and wants to keep everything high…
Because if the real estate market goes down a lot of people will be a lot poorer. It will cause valuation loss, and that might catch up after things get built up, but it’s going to change a status quo.
The last vote on the subject, about a decade ago, clearly went in the other direction. Coupled with a quickly growing population, it seems very, very unlikely that prices will significantly decrease in the next decade. Even when the interest rates rose with COVID, what happened was that volume went down, and prices were mostly stagnant.
Waiting does not make sense to me, especially not waiting uninvested. Either you value buying on more than just financial grounds, then you should buy as soon as you can. Or you do the maths and say buying is not for me.
It’s most likely caused by rent control. There are only so many occasions to increase rent, and I assume those houses have lower turnover compared to flats, and fewer renovations, limiting how much/often the landlord can raise price. At least around here in Lausanne, they are also the first ones being torn down to build flats if zoning allows.
Thank you. That is indeed something I was not aware had happened and it does give a bit of a likely tone for some time. Uninvested is not good, but it’s also a matter of risk aversion in that case, and there are few options to invest short terms with low risk that make sense to us at this point. Waiting might not make initially sense, but it does when you don’t have enough capital to afford a good that matches one’s current lifestyle.
That would indeed likely be the case as a lot of these places had people renting for 10+ years. And yes they’d be torn down if zoning allows, but thankfully so far this seems to be counterbalancing the lack of new constructions by happening very slowly.
In Switzerland, we would like to preserve unbuilt land and urbanise existing residential zones by building more and larger structures (verdichtetes Bauen).
but there’s a weird dichotomy there. That is the housing shortage is becoming Increasingly accute
There is less building coming up, and people(and gemeinde) are fighting hard to not get dense buildings around them. This is not new but it’s getting to be more and more of a problem.
The problem is that this shortage needed to be tackled 5 or 10 years ago. Not now, it’ll hit even harder.
To come back to my original questioning, I now understand there is a federal “country-wide” desire to limit urban sprawl. Densifying is not happening.
There’s a lot of “not in my backyard” happening causing this, and I stay quite certain that most people would actually not object to larger denser construction being build in many big cities agglomerations, but kantons(do gemeinde have any influence on that?) are keeping the zoning very tight under real estate groups & investment funds pressure.
TLDR; if you can’t build out, then build up. If regulations & lobbies prevent building up, you end up with shortages and ridiculous prices.
I am no expert. Just to provide my view. I think the housing market here in Switzerland will not “slight contraction” simply because the demand is there and any “slight contraction” will be seen as an opportunity to enter. So I think the drop will only come if it’s a crash, like 2008 in the US.
The LAT/RPG revision from the 2013 vote is really unfortunate imo. The spatial planning is way too strict and not pragmatic at all. This should have stayed in the hands of the cantons to decide.
The future is for everyone to live in overpriced apartment buildings (but next to an empty field!). With of course a perpetual housing shortage.
Individual family houses is about to become the most scarce asset in the universe since its supply is only gonna decrease rapidly.
I guess laws can also change. But I’m not knowledgeable as to how likely that is in case of further housing pressure.
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