Property Ladder in Switzerland?

Accomodation, House and Garden
1
Is this a good idea to buy a small property, wait a few years, and then exchange it with a larger house, instead of just waiting to collect enough money for that larger house? Doesn't the money lost during selling/buying flats make it unreasonable?

2
Yes. Buying and selling (without an agent) is cheaper than in the UK.

(Fatmanfilms will disagree)...

3
You pay a penalty if you sell a house/apartment with a profit after few years. So you will pay hefty taxes. Not sure if its really worth it. Most people buy to live in and to keep it for a long period of time. There are no real starter homes as in i.e the UK. At least that is my opinion.

4
Close but no cigar. If you sell a property within a few years you are subject to capital gains tax on ‘your profit’. The rate of the tax falls after a few years. But if you buy another principle residence the tax is deferred until you finally dispose of your final property.

The only real problem with the ladder is that the first step is a doozie.

5
If you reinvest the money in self lived in real estate in the same canton the taxed is postponed until you sell the new property. And the longer you have a property the lower the tax.

6
Selling in the UK without an agent will also be very cheap, especially below the stamp duty threshold. The agent selling my wife house made my wife a net £50,000 as the price achieved after his fees were £50k higher than any other agent dared ask for the property.

Market is small & people pay a premium for new, so trading a new build after 3 years may well loose money. Same is true in London as many people who bought off plan & can't complete as Banks are valuing at 70% of agreed price.

7
Also the cost of renovations to improve the property can be set against any capital gain also.

8
Well clearly you have not made a gain if you spent money, same for all associated costs of buying & selling.

9
In a rising interest rate environment that follows a long period of low to negative rates, there is no such thing as a property ladder but rather a property trap.

Anyone buying over the next 5 years anywhere on the planet will likely (in my opinion) come to regret that decision.*

* my comments should be taken with a pinch of salt, I have been wrong since as far back as 2009 when I expected interest rates to rise sooner. It’s taken nearly a decade for them to start rising! The consequences are clear: higher interest rates = lower house prices (whichever way you slice it)

10
do it ,just buy a place, it completely changes youre perception of living here, i was ready to leave after renting a flat for a couple of years, and earning less here than the uk(the price of love) and for those that bang on about c.g.t on profit from sale, .....yes that is so ,but think about this,

i bought a house , in zurich, it is a semi detatched , , 3 bedder, 2 garages, and 6 parking spaces ,a small garden, and celler , with room to expand property by 50%,extensions etc

i fixed my interest at 1%, so my hypoteck is about 600 permonth.

that would not even rent me a bed sit in a small town 100k around zurich

i have fully renovated it and cranked up about 30% value on purchase price,

all expenditure, is tax deductble,(that compensates the cgt),

and after being a guest in someone elses country, whats wrong with paying a bit more tax on top of good luck,

oh ,and i get to use my own washing machine whenever i like, ,

i cant spell, but i can count

11
We bought a 'compromise' house, which is not dissimilar to buying a starter as you envision. While I do not regret buying per se, I do very much regret having compromised.

We had to get out of the rental house or sign another 5 year lease; renting any longer was out of the question so we had limited time to find a property to buy. We looked at everything on the market that ticked at least some of our boxes, and then bought the best of the lot. The house we bought was a long way from what we wanted but we - naive in that we were used to the liquidity of other markets - figured we could keep looking for the dream house and sell the compromise house once we found it.

The problem is, we never found the dream house. I've been stuck for 15 years in a compromise house I have grown to very much dislike. And if by some miracle the dream house appeared tomorrow we are too old now to take that step, as we will have to leave Switzerland when OH retires.

Financially the decision to buy was the right one. We won't make a profit from selling this house, a quirk of owning a type of house that is out of sync with the changing village. But neither have we made a loss, as we have saved significant amounts over renting. The mortgage is pennies, where we were paying an absurd amount for the rental house.

There is no tax advantage to owning for us, thanks to our blue passports. The silver lining wrt anticipating not making much of a profit on the house is that I am not worried about CGT. The only tax issue that might arise is that Uncle Sam views the sale as a currency trade as well as a property transaction.

So... while your idea is workable, as you look at houses be aware that the dearth of properties on the market at any given time may mean you could be living in that 'less than dream' house for longer than you might now anticipate.

Home ownership tends to anchor you to an area. Keep that in mind before buying the starter house, as once anchored your search for the dream house becomes more difficult as you may have limited the field.

Compromise on your first house if you must - but think ahead and do so carefully.

Good luck with your search.

ETA:

There were a couple of instances where already owning a house cut me out of the running when bidding on potential dream houses. Granted, I was looking for something in rare supply and high demand - a farm house in an area commutable to my husband's office. Competition is always fierce for such properties, owners (or their agents) often make unusual decisions wrt potential buyers just because they can.

Then when we shifted priorities and looked at buying a holiday home rather than a primary residence, the idea being that a holiday home might give us enough of a break from the house we don't like, allowing us to continue searching for the dream primary house, I ran into permit issues. Buying a second home as a non-EU can be problematic in some communities.

These issues might not apply to you, but I'm just tossing out my experiences as something to think about.

12
interest rates is just a single factor among many factors. but even on this one, you could be wrong. while there are stronger signs than ever of rising rates (particularly in the US, also ECB stimulus wind down) it is not at all clear that a return to rates of 5% is going to happen any time soon - particularly in Switzerland.

The experience in Japan has shown that you can be stuck in a low interest environment for a long time. Also, some bank on a 'reversion' to an 'average' of 5%, but there's actually an argument if you look more broadly, the 5% level was an anomaly and we are actually now reverting to normal low interest rates.

if rates really stay this low for another few decades, swiss property could prove to be a sound investment, even at the current high prices.

13

But i think there is a limit of 30K per year.

cheers

SC

14
Do you have a source for that?

Seems very unlikely that you could spend a Swiss amount of money on renovating a property and only be able to deduct a small portion of your capital investment from any realised gain. Nothing would ever get built!

15

You're right, that stated limit is incorrect, certainly in Kt Zurich.

All costs deductible.

16
I would think it depends, not least on the Kantons the properties are located in due to Handänderungssteuer (tax on change of ownership) which is levied on the full selling price.

Deferred taxation of capital gains is federal law ( Steuerharmonisierungsgesetz §12 Abs. 3 , n/a in English), so contrary to what some say it applies regardless of the Canton(s) the two properties are situated in, but the details (in particular the timeframe within which the two transactions must happen, perhaps also [amount of] accepted deductions when computing the net gain) may differ.

Some Kantons levy a tax (Handänderungssteuer) on the selling price, 1% appears common. Of course laddering is much more attractive without such a tax. Kanton Zürich doesn't levy a tax (Kanton Schwyz neither) but they charge a fee of 0.1%. Conversely Cantons Thurgau and St.Gallen charge 1% tax plus 0.4% fee. Additional costs are likely to apply, e.g. notary fee.

If you do ladder, the full cumulative gain (after applicable deductions) is taxed at the final Kanton's rate, with the time between your first purchase and the last sale determining the tax rate. So if, say, you've been laddering in ZH due to its lack of a Handänderungssteuer, it may be profitable to ladder once more but this time into a low-tax Kanton even if that Kanton taxes change of ownership.

Mind, buying a property will probably bring additional costs. And having, for instance, a fixed-term mortgage will complicate things further (and weaken the seller's position).

17
If doable you want to spread the costs between more than one tax period to break marginal tax rate for more than one, especially if the cost are more than your taxable income. The craftsmen are used to that kind of request and, assuming a standard case, can be expected to agree without further ado.

18

Exactly Urs.

This is a significant tax break.

19
A friend of mine who is an estate asset manager for a large company unequivocally told me it is not a good idea to buy property in Zürich unless you buy something quite central in a desirable area. He said there are so many new builds popping up around the outskirts of Zürich that when the interest rates inevitably rise over the next few years there is a good chance you can lose money as house prices also start to fall.

As such I reckon I will (unless I find some amazing deal in the meantime) continue to rent for the next decade or two and aim to build a nice little next egg through savings, investments and inheritance that will eventually allow me to more comfortably afford a better place without digging into my pension fund.

20
"Starter home" is the term I was looking for.