I'll start by apologising for what is to follow, as I am sure most of it can be found on google. But here we go anyways. Found a house and used a basic calculator for mortgage from Credit-Suisse and realised given how low the rates are I would be paying substantially less in mortgage payment then in rent. I sold my house in the UK this month and have enough for a deposit.
1. "Charge financiere" - in terms of percent of salary they use a basic rule of 33%, I looked online and it seems this can be stretched to 40% - then I realised it was from a French website... So question: Is it a strict line the 33% rule for the salary, and if not by how much can this be stretched?
2. In terms of price psm - generally, what will be more expensive: a new development yet to be built and delivered in 2023/24 or an existing house that is 20+ years old.
3. In general how do you go about doing market valuations and what resources do you use? In the UK it's straightforward, rightmove has sold house prices and very large inventory. I am looking in Chene-Bougeries and except for a couple of houses on the market (with most being way out of my financial capacity, there isn't much).
4. In terms of roof extension, in the UK I can just go with permitted development rights - here, how hard is it to get planning to add a floor to one's house? I imagine damn hard, but just the very basic would be interesting. Also what about adding a pool do you need planning for this? Any extra info there would be curious to hear about.
Thank you in advance! Journey is early in the search, but the house is next to where we rent and next to our daughter's school. Worst case we move and I'll just put it on the rental market. Given how tough it is to rent around here I figured I won't have any issues or take any meaningful risk from that perspective.
Edit: we used to have a property management business in the UK. I am aware of construction costs, but would do most of the work myself as I've done a few projects in the UK so that does not scare me.
Adding a 5th question! the tax to buy etc.. with notary fees amount to roughly 7.5% if you include the cost associated with registering a mortgage. Can you add that 7.5% and borrow against it, or does it have to be financed cash out of pocket?
Getting permission to extend is pretty difficult..... there's no such concept as 'permitted development' in Switzerland; adding an extra floor onto a private house could well prove impossible.
My son owns a detached house on a small '70s housing estate on the outskirts of the city and has vague ideas of eventually adding an extra bedroom and bathroom above the attached garage (he'd already had a fight to be allowed to add doors to what was originally a large car port and only managed to do so after pointing out that several other house-owners have already done this so there was a precedent). Adding a bedroom would involve raising the garage roofline by ~1 metre (so still lower than the roof of the house) and he's not sure he'll get the plans past the neighbours........bear in mind that neighbours here have the right to object to building plans and alterations, and they frequently exercise that right.
Son discovered during the sale process that the original owners of the house had installed a small swimming pool but had 'forgotten' to obtain planning permission before starting the work and they'd applied for it retroactively. As the next-door neighbour thought the pool was on the wrong side of the house (in the non-overlooked front garden rather than the more exposed back garden) permission was refused and despite several appeals the owner was made to remove the pool. It's apparently still there, just full of soil and turfed over!
My son is an experienced, swiss-trained architect, knows his way around the mine-field that is building regs. is also on good terms with the original architect of the development and has his backing for the proposed alterations. If #1 Son thinks he'll have trouble extending his house then I fear most bods will find it beyond difficult.
Personally I'd either look for an existing house that already suited requirements, or buy off-plan and get any changes done by the builder.
There is little or no valuation references. But banks will come to a valuation up to 20% below market prices.
I know that your cash may be burning a hole in your pocket, but I recommend spending some time learning the market. I have bought twice (Canton Zurich) each time it took 2 years to find the right property*. Interest rates look like staying low for some years to come. I just locked in an 8 year interest only mortgage at 0.8%.
There isn‘t much on the market and much of that is rubbish.
Talk to your bank/potential lender and have the explain the tax implications and the way it works - which is not the same in each canton. Eg legal fees are lower in ZH...
Banks are openly stating that prices are breathtaking and are being supported by low interest rates. You can lock in a rate to reduce your risk but people often overlook the impact rate increases could have on the resale value. I would make sure to at least think this through before you proceed
Example 2.5 M CHF house, Rentable at 5k per month, 2M CHF loan
Cost @ current 1% rate: 20k interest + 25k amortisation (it is a SNB requirement to amortise to 65% in 15 years)= 45kyr to the bank
If the rate is 3% in 10 years and you want to sell at 2.5M, the cost to potential new buyer = 60k interest + 25k amortisation = 85k/yr. Meaning, that unless rents increase significantly the next buyer may be inclined to offer less than 2.5M
Banks are saying they do not expect interest rates to go up in the short term, but in the lonter term it is a risk to be aware of and is the reason I am not buying
Above calc is simplified and costs exclude tax on deemed rental value, maintenance etc. To your Q5 the purchase taxes are lost once bought and cannot be borrowed as far as I know
When it comes to extensions, etc there are several things to take into account.
Each property has an index which states what proportion of land can be used as living space. You need to look at the local regulations to find out what that is (it is generally part of the zoning plan) and how "living space" is defined. In most cases, basements and attics are excluded, but Switzerland isn't known for being consistent... So, for example, your land is 600m2 and the coefficient is 0.4, you would be allowed a dwelling of 240m2 living space.
Also, the zoning plan will tell you what kind of houses are allowed (e.g. apartment blocks, one or two family houses, etc). It will also tell you how high the building can be and what the borders to the neighbouring properties and road must be.
If all these conditions are respected, it is difficult for neighbours to object just on the grounds that they don't like it. They may try, and you may go a couple of rounds, but if they have no legal basis you should be ok.
You will most definitely need a building permit to add a floor or to put in a permanent pool.
If you can't live with the property exactly as it is, don't buy it.
If enlarging the building, changing the outline, adding permanent fixtures in the garden are 'musts' in order to live there... walk away. You can never be certain that permission to do so will be granted.
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My tale of building permit woe:
We bought this house with the intention of adding a Wintergarten. Other houses in the Quartier already had similar Wintergartens. (Our Quartier is governed by a Gestaltungsplan.) Before making a bid, we wrote to with the Bauamt, giving a detailed proposal of what we wanted to do. They replied in writing that a Wintergarten was allowable and a permit would be easily granted.
Day after we officially owned the house we submitted our permit application.
Denied.
When I asked why, I was simply told that Frau X, who had given us a positive decision to the original inquiry, 'did not have the competency to make that statement'.
Whisky Tango Foxtrot? Then why the fork was Frau X allowed to answer permit inquiries?
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So even when you do your due diligence, even when you are told the X or Y is do-able, there is always the chance that in the end you will be denied.
Which is why if you can't live with the house as is, walk away.
Thank you all regarding planning. Extremely useful, I was expecting it to be a bit of an uphill battle - but clearly it's more than just a battle... I always tend to add things to a house as things change in life, always easier than paying taxes every time you buy and sell because family situation changes...
I asked the bank and they can stretch to 39% subject on your file. Regarding rates, sure if rates go up there will be more exciting investments than real estate - but that's offset by inflation as well in terms of rent going up (if rates go up, inflation is likely going up). I pay about 3x in rent what I would pay in interest - would need rates to x3 for it to be money losing. And the old time adage: they don't make more land. I just feel that we always wait for a market correction and it never happens.
Normally rates would be 1-2% above the rate of inflation, so in effect the real rate should be more than double & possibly closer to 3 times what you are paying today. I remember Post Finance paying 2.5% interest on savings accounts less than 20 years ago, they were charging more than 3% then on mortgages, substantially more for a 10 year fix.
For a rough idea on the valuation of properties post finance have quite a good ap called HomeCheck. Its a starting point before you involve the banks. But this is a valuation of a specific property, its not giving you a feel of the market rate.
You can of course divide the selling price or the figure you propose to make by the sq meters of the property so you get a feel of a comparable price. But its all only guides, as there are so many variables.
Generally what you can borrow is (your or your household salary / 3 / 7) *100. This is a rough guide to the stress test. On top of that you would have your cash you are putting down and any pension and you sort of get to the total amount you have to make an offer.
Buying new in Switzerland mostly means you wont be in a bidding war. Its possibly easier to get. And I think if you get a place that has this Minergie thing, then the banks give better interest rates
Correct but only in the long term because there is a lag between the two that may take years or decades to balance out
If rent inflation goes to 2% it will need several years of compound increases to have a meaningful impact
Iif SNB rate goes to 2% to curb inflation and mortgage rates go to ~3%, the interest cost for new buyers increases 300% immediately vs today. This multiplier impact is much bigger than in the past when a 2% increase might have meant an increase in mortgage rate from 4% to 6% (50% increase)
I have no idea if or when inflation will arrive. I am just calling out the risk that in the short to mid term, it is a much bigger gamble on inflation and interest rates than it was in the past. I am not saying not to buy if you plan to live there for the long term
I hear you, and don't have a made up opinion myself. In the UK over 65% is owned with cash and no debt. I would imagine a similar ratio in Switzerland or more.
You can fix part of the mortgage as well for many years which you can't do in the UK, so in Switzerland there is even less of a pressure to sell if rates go up, keeping the market stable as there wouldn't be any stressed sellers bringing the market down. So all existing home owners won't be forced sellers - there is also a huge lag for prices to adjust in the for sale market as well, and in the meantime people will still be squeezing their salary to buy.
The stress test, if I am not mistaken, is not percentage based but they add a fixed amount of interest to see if you can afford the mortgage - so people will still likely be able to borrow even if the interest cost has gone up by 1 or 2%. So while 300% increase sounds like a lot in percentage term, in the grand scheme of thing it isn't. In their affordability calculator interest is a quarter of all the costs (including amortization) Most people do not push to the max the amount of borrowing they can get, as far as I know.
An increase to 2 to 3% does not really worry me for real estate - if we are talking 5% than yes that's another question. But the SNB is good at manipulating its currency to stop it from appreciating against others. Rates are kept where they are for a reason, we would need to have a hell of a rampant inflation for them to go up. I tend to be in the camp that says inflation is not temporary globally, but looking at bond markets it seems that on a five year horizon things will cool down globally again not justifying any radical raise in interest rates.
More than happy to hear your thoughts. I have not made my mind on the matter, at all. I just see that I would pay 3x less in interest than in rent if I bought here. Planning laws seem draconian from this thread which should keep supply in check. The demand is unreal for housing. Unless an international organisation decides to move out (which after talking to my neighbor would be essentially impossible regarding the major ones we have here), I just don't see how we could ever have any sort of major correction in Geneva prices (famous last words...) At the moment I love my landlords and the house I live in is perfect, it's even more than ideal - only reason I would move would be a financial bet.
I sold my house and a BTL in the UK in the last two years because I was worried about house prices and didn't want all my wealth tied in London real estate. Still have a couple of things out there, but I sleep well at night now. Now any investments in London properties will be done on a project basis with no view to hold. So clearly I am worried about inflated markets, but I seem to rest a bit more easily with Swiss prices for now.
Single family homes have gone up 5.4% in the past 12 months - helped or not helped depending on your view, by Corona. Its good if you own a home, but its dangerously close to bubble and crash because that sort of increase is massively unsustainable.
every indicator has it as "bubble" territory. What a world we live in. Equity at all time high, bonds at all time high, everything at all time high. The only thing going down is Chinese equity. You are all probably right - I sold in the UK to de-risk when I saw the yields I was getting on the rentals. Here in Geneva yields are around 2%... There is a real fear of missing out on everything and inflation eating up my savings. Not an easy call - paying rent into emptiness or building equity and paying interest for it.
I agree the Geneva housing market is unique and cannot be predicted by looking at national statistics and it is also a good point that prices could be "sticky" on the way down
Just to share some numbers. Suppose a family has a budget of 5,000 CHF /m rent or they can buy an identical house in Chene-Bougeries for 2.5M with 80% mortgage @ 1% fixed interest rate.
Simplified "Monthly cost to own" (*) today is 5.1k [ interest 1.7k, tax on deemed rent 2k (40% marginal tax rate on 5k deemed rent), tax deduction on interest -0.7k, maintenance 2k ]
I have assumed 1% of property value for maintenance which is usually recommended by banks. The actual cost depends on the property but roofs, kitchens, heating systems etc. all have a finite life and need to be upgraded and budgeted for, a repaint can easily cost 20k... . In any case, many families are happy to buy with these numbers so that they have their own place
In 10 years time if the rate is 3% and the family try to resell at 2.5M, the monthly cost to own for the next buyer with 80% loan becomes 7.1k (due to higher interest rate net of taxes). For the monthly cost of ownership to become 5k the house price would need to decrease to 1.5M CHF
The new buyer may be prepared to pay more than 5k per month to have the pleasure of owning and you can debate the 1% maintenance cost, but a price decrease of even half this amount would still be significant
(*)does not capture approx. 160k purchase taxes (assumption 6.5%), monthly amortisation payments which can be thought of as savings, or opportunity cost on the 500k deposit and monthly amortisation
You have a very valid point - I guess the question on everyone's mind is whether we are going to emulate Japan with deflationary pressure. There is no real growth coming out of the economy, tech keeps on putting pressure down on inflation. And on the other hand every assets has gone up in value and is likely to stay there for a long time.
I have no answer and I debate this with myself all day long. I completely agree with the risk you are illustrating. But where I am more dubious is the effect on house prices. During inflationary environment houses tend to rise as well, surely there is the couple who will have to pay more due to rates rising, but they'll also have to pay more in rent. With every assets losing their value, especially money, when inflation hit - won't people be attracted to good old brick and mortar? Can't print that.
I am with you, I am also debating it constantly as we would like to have our own place but I can't make it stack up on such a high value purchase.
Regards inflation, if you are buying for the long term I agree you should have less risk on the price. In the short to mid term on the other hand, I saw a study that property prices do not necessarily go up in line with consumer inflation. The reason is the lag effect described in the post above.
e.g first inflation goes up, which might result in higher interest rates and downwards pressure on house prices, then workers ask for higher salaries, then rents go up, and then when it becomes cheaper to own again house prices go up, by which time interest rates might have gone down too. This could all take a long time, but if you own for (say) 30 years it should play out that housing grows with inflation