Baurecht (Ground rent)

Accomodation, House and Garden
1
Hi All,

I am planning to buy an apartment in Zurich.

The location is good commute wise, it is 91 m2, it was built in 1989.

The price is attractive: 720K

There is a catch: Baurecht, ending at the end of 2070.

Where I am from, we do not have similar concept, so I am worried about any unkown factors...

Sadly I do not speak German yet (or at least not on the level I would need for this topic.)

I have read the following article, but it is still not 100% clear for me:

https://www.admin.ch/opc/en/classifi...ndex.html#a779

How fair is the compensation after the leasing priod is over? Anyone has experience on this?

Typically how much cheaper are these apartments than regular "fully owned" ones?

Would I be able to sell it, like in 10 years, if I decide to buy a different apartment/house? (I meant: selling on a reasonable price.)

In general: does it look like a reasonable deal?

Thanks a lot in advance for your advice!

Daniel

2
to be honest, i've never looked at the rules for baurecht as nobody wants to buy them and it sounds like a bad deal.

not sure what you mean by compensation. i assumed that once you get to 2070, the flat reverts to the 'freeholder' and you either move or reach an agreement to buy/rent from him at market value.

i wouldn't bank on being able to sell it again...

3
Thanks for the answer.

I meant this:

"The landowner must pay the holder of the expired right adequate compensation for the buildings which have reverted to his or her ownership, but such compensation is subject to the outstanding claims of creditors to whom the building right was pledged as security and is not payable to the holder of the building right without their consent."

https://www.admin.ch/opc/en/classifi...dex.html#a779d

4
well. take this with a pinch of salt, since i never looked into it assuming you get nothing. but this seems to be the case when you buy the land lease and build a house on it and then when the land reverts, the land owner pays you compensation for the building you built on it.

since the building is already there, then i assume you will get nothing. and even if that was not the case, i assume the value of the building in 50 or so years would be zero anyway.

5
If it is an apartment, it is anyway under what they call "Stockwerk Eigenthum" (common ownership). That means you do not 'own' your own apartment, you own a share of the whole building and land, but have 'special rights' to occupy the apartment assigned to you. Everything is clearly defined. That applies to (almost) all apartments.

What is special in this case is that the land on which the apartment block is built is not owned by you and the other occupants of the block. It is only leased for a specific amount of time. At the end of the lease, the owner of the land can take ownership of it, but has to compensate the owners of the structure built on the land at a 'fair' price.

You've simply got to factor all that in. It may make your apartment more complicated to sell, increasingly so as 2070 approaches, which is quite a long way off. But the reduced purchase price may make it an attractive deal.

One thing that will protect you from a big mistake (unless you are paying a huge deposit yourself), is that the banks will not lend on anything unusual/difficult to sell.

6
Buildings depreciate, property is only a good investment because the land is scarce & increases in value.

7
First of all, you will always be able to find a buyer - if the price is right.

Then, Baurecht usually means you've got to pay a sort of rent to the owner of the land (Baurechtszins - the contract should mention this - sometimes, this "rent" increases over time - at least that's what I have seen with the most recent Baurecht-project here next village).

Have you talked to a bank?

They'll tell you what they think this thing is worth.

It's almost 30 years old and less than 100 m2. And there's even the Baurechtszins on top.

It's usually an interesting exercise to divide the amount the seller asks by 240 (20 years of rent).

This comes down to 3000 per month in your case. You should be able to rent something <100m2 for 3k per month. No?

And yes, the value of the building in 2070 (it's close to 100 years then) would probably not be much.

What repairs were done the previous years? What repairs/renovations are planned?

Still on oil-heating? When do they plan to switch (currently not a problem, price-wise, but if they're still on their first oil-burner, it could go bust any day after 30 years).

Personally, I'm divided on Baurecht. On the one hand, its a great tool for cities, villages and the church to ensure they can do something with their land without having to sell it directly (and a sale is a very final thing).

On the other hand, it would probably drive me crazy to "own" such a place.

At least, in the beginning.

But it's probably a cultural thing. A mentality you have to get used to.

8
personally, i wouldn't touch it with a barge pole.

even assuming interest rates remain at 1% for the next 54 years, buying at that price is the equivalent of committing to paying a monthly rent of 1'436 (assuming my sums are right) for 54 years (plus any other costs, repairs, bauzins over those years).

unless this is prime property in the middle of zurich, it probably doesn't make sense.

9
The calculation should also take into account the cost of renting an equivalent property. You wont get much in Zürich for 1'436 per month (or even twice or maybe even three times that). If interest rates rise, so will the mortgage, but so will rents (which are usually somehow tied to mortgage rates).

I would certainly give a lot of weight to the willingness (or otherwise) of the banks to finance it and they are (now) quite conservative.

10
At 3% it is 2'227 chfs so getting more interesting. for me the illiquidity of a baurecht property, plus long commitment makes it tough.

For non-baurecht property, i have my standard benchmark of 6.5% minimum yield. so for 720k it has to be able to rent out for 3'900 per month.

11
Thanks for the advices!

As there are many 80+ years old buildings in Zurich Today,

I was wondering how the fair compensation would look like.

Does anyone of you know how it is calculated?

If I could calculate a rough estimated value (X) for 2070, that would help the rest of my calculations.

In that case I could say, that at any time X is the lowest possible value of the property.

The value amortization due to the baurecht impact only the 720k-X, and I would be able to distribute it per year to see the linear value loss.

This would allow me to have an estimation for the exected value in 10years for example.

Any ideas?

12
The "fair price" is the scary thing, original cost minus depreciation, bank valuation, market price for similar apartments, all are fair depending on where you stand. The elephant in the room is the landholder and their plans, as it is/will be from "old Swiss family/money" the interpretation of the rules will always favour them, I have seen this time and again with local building approvals, one person says corruption another says connections. Your only hope is to search what legal precedents have already been set to try and crystal ball the future. If you are considering owning join HEV and try to get some information from them.

13
You may be able to get something out of these with google translate (Ger.):

http://www.stockwerk-eigentum.ch/stwe-im-baurecht

http://www.thomannfischer.ch/downloa...ambaurecht.pdf

and more generally:

https://www.google.ch/?gws_rd=ssl#q=...um+im+baurecht

The basis for the calculation of the land lease costs and what what happens at reversion are described in the ground lease contract.

The general advice is seek professional advice.