![]() And this calculation doesn't include capital growth over the long term, which could be substantial. And your interest rate would be well below the gross yield, so you'd have more money coming in than going out every month.Īdd to this the fact that in Switzerland, mortgages can often run for 40 years, spreading the cost over much longer than is the case in other European countries. Since you're only putting up a third of the price, the post-tax net return on your equity capital would be 4.3%. However, it would still be more than negative - so better than leaving your cash in the bank.īut if you used a mortgage to pay for two-thirds of the purchase, you would get even better returns. Of course, out of that you'd have to provide maintenance, management (or your own time), property tax, and repair costs or a sinking fund. That's a gross yield of 2.8-3%, which isn't great if you compare it with gross yields up to 8% in some smaller French cities, or 5% plus in Spain. You could buy a flat in Dietikon, canton of Zurich, for around CHF 1m, and rent it out at CHF 28,800 a year (CHF 2,400 a month). Still, let's look at an example of what returns a Swiss buy-to-let could deliver over the long term. But when property is compared to other assets, such as cash, it may not look so attractive. That will protect you against the direct impact of higher rates. Of course, if you're borrowing to finance a property now, you should get a fixed rate loan. But what will happen to them if inflation takes off, as some economists think could happen as a result of economic stimulus after the pandemic? Banks are likely to hike interest rates to keep pace. With interest rates at all time lows - in fact, in Switzerland you'll get a negative return on cash in the bank - no surprise that investors want a good return. There's a third worrisome factor for investors in real estate worldwide right now. High vacancy rates are also likely to depress rents Back in 2018 the Swiss financial regulator warned it was unhappy with the high amount of banks' lending to real estate, and pointed out that 70,000 homes were vacant - that's a city the size of Bern. This is a hidden menace for many investors, because they don't include contingency for periods when their properties are unlet in their financial plan. Secondly, vacancies for rental properties keep rising. ![]() That means some landlords could panic if prices fall. But there's another factor to be considered the fact that the price-to-rent ratio is so high means the market depends on persistently low interest rates, and is being driven by expectation of price increases rather than running yields. So running yields (the amount of rent you get compared to the purchase price) are lower. The market depends on persistently low interest rates, and is being driven by expectation of price increases rather than running yields In Geneva, October 2020 saw rents in the city fall by 1.8% year-on-year, while for the canton as a whole there was a fall of 1.1%. Worse, housing prices are still rising while real rents fell by 1% last year. While the risk of a bubble has declined as the economy has recovered, the market is still stretched. Almost all new housing has gone to the rental market, and there has been increasing demand from landlords to buy in the city center. ![]() (Out of the 25 cities that UBS looks at, only Chicago remains undervalued.)Īnd UBS also says the owner-occupied market in Zurich has dried up. On the other hand, UBS sees Geneva as much less exposed though still in the 'overvalued' category. Its 'bubble index' puts Zurich behind Munich, Frankfurt, Paris and Amsterdam as markets that are in potential 'bubble' territory. In fact UBS has been warning that property is overvalued for a while now. Of course, rental rates have gone up too - but they haven't quite kept pace over recent years. The Swiss Residential House Price Index has risen from below 120 to nearly 180 over the period. First of all we should note that prices in Switzerland have gone up since 2004.
0 Comments
Leave a Reply. |