
Switzerland: How buying real-estate can kill you financially/reasons for stocks - s3nnyy
https://medium.com/@iwaninzurich/switzerland-how-buying-real-estate-can-kill-you-financially-and-two-reasons-to-go-for-stocks-79704213b229
======
marklit
I would suspect a few of these wealthy foreigners buying property are trying
to make sure there wealth is tied up in something their home state cannot take
away ownership of. If it depreciates a bit, it's probably fine. 97% of
something is better than nothing. I also suspect they have nice stock
portfolios already as well.

~~~
cgb223
Makes sense

A lot of Chinese nationals are buying property in the states and Canada in
order to accomplish the same thing

I wonder how this kind of cash parking affects property values?

~~~
minikomi
Is it possible to create "real estate" which is basically geared towards this
kind of thing?

Eg. a large vertical block of tiny, tiny rooms which are just good enough to
be livable, but with extremely expensive components.. designed to be parked
and traded and never lived in.

~~~
hkmurakami
Such highrises seem to exist in china. (Refer to their real estate speculation
bubble)

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iagooar
Yeah Switzerland is great as long as you don't have children. Once you get a
child, well, you're out of luck. Childcare in Switzerland is the craziest
expense I've seen in my life, where having your kid looked after for 5 days a
week will cost you 2-2,5k CHF / USD per month! And if you have a second child,
they might give you 10% discount. So around 4,5k USD per month for 2 kids.
It's madness!

Besides that, you will need to leave your shared apartment and go looking for
one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month.

So while I agree that Switzerland is a nice place to be while 20-30, after
that age it hugely depends on your situation. Got 2 kids and know some German?
You might actually be better off in Germany.

~~~
s3nnyy
OP here. I disagree with everything you said.

> having your kid looked after for 5 days2-2,5k CHF / USD per month!

Yes but only when your kid is 2-3 years old. After that kindergarten is free.
Superb elementary school, high-school is free; and on top Uni-Zurich and ETH,
the MIT of Europe, is also almost free (costs like 500$ a semester).

> Besides that, you will need to leave your shared apartment and go looking
> for one with at least 4 rooms. That'll easily cost you 2.5k-3.5k per month.

Why? You're probably referring to some regulations. Well, if you have a wife
and one kid, you can legally even live in a 1-bedroom apartment (formula for
legal limit of grown-up people per apartment is "# of people = # of rooms + 1"
\- source p. 29:
[https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...](https://www.ekm.admin.ch/dam/data/ekm/dokumentation/materialien/mat_wohnung.pdf))

~~~
iagooar
Of course you disagree. You literally make money off people who want to buy
into the "Swiss dream". While certainly it is a great country to live in, it
has its shortcomings. What I'm pointing out might not be a big deal for many
people who are not planning to have children. But for others it sure might be
a deal breaker.

> Yes but only when your kid is 2-3 years old. After that kindergarten is
> free.

Yeah, you just forgot to mention that kindergarten starts at the age of 4, and
is not 5 days a week, the whole day. It's 4 days a week, 3,5 hours a day. The
rest still needs to be paid at the same rate I mentioned before. So you are
talking here without really knowing your facts.

> Why? You're probably referring to some regulations. Well, if you have a wife
> and one kid, you can legally even live in a 1-bedroom apartment (formula for
> legal limit of grown-up people per apartment is "# of people = # of rooms +
> 1" \- source p. 29:
> [https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...](https://www.ekm.admin.ch/dam/data/ekm/dokumentation/material...))

So you are basically saying that someone who earns a shit-ton of money should
live in a 1 bedroom apartment with their partner and child? I just can't
answer to that...

~~~
s3nnyy
>So you are basically saying that someone who earns a shit-ton of money should
live in a 1 bedroom apartment

No, I am not telling anybody to do anything. I am pointing to the existing
legal possibilities because Zurich's landlords are arrogant and sometimes
write clauses in their rent-contracts that "break" Swiss law ("only 1 person
can live here"). I am trying to highlight that Zurich's jurisdiction is
renter-friendly and laws are applied rigorously.

You can calmly rent-sign a contract with weird clauses, because they are
invalid, so you can break them and the landlord can't kick you out for it.
Worst case is you get infront of the "Schlichtungsbehörde" which is a pre-step
before the court, where a volunteer-landlord, volunteer-renter-representative
and a neutral party will decide over a dispute quickly (and cheaply). So
please make sure you are member of mieterverband.ch, if you live in Zurich.

------
bradleyjg
For my follow Americans thinking about commenting on this, keep in mind that
mortgages vary quite a lot from country to country.

The mortgage system we have in the United States--characterized by: domination
by the government (in the form of GSEs), long (30 year) fixed rate mortgages
with no prepayment penalties, high leverage ratios (up to 19:1 or higher), and
low spreads--is not the system used elsewhere. Other countries also tax
mortgages and homes differently, and may have far more widespread rent
regulations in place.

Rules of thumb and folksy wisdom that was developed in the context of the US
system probably won't translate well to a very different one.

~~~
leejo
Mortgages in Switzerland can still take on the literal meaning of the word(s),
running for 50 or even 100 years with the debtor's pension fund placed as
security.

FWIW the OP's cost of living figures in the video included in the linked
article seem a little low or are assuming best case. Sure you can get health
insurance cover at 250.- CHF a month but that will be at the highest franchise
(i forget the English word) so if you do get sick it's going to cost you 2,500
CHF before the insurance kicks in.

1,200.- CHF a month seems low for Zürich, but also high for a single room with
no kitchen. I'm paying a little more than that for 3.5 rooms with a kitchen,
garage, cave, etc. No, I'm not in Zürich or Genève.

400.- CHF a month on food seems about right if you never eat out at all ever.
And sure you can spend as little as 100.- CHF a month on travel, but you're in
Switzerland - get out and see a bit of it, go snowboarding/skiing in the
winter season.

~~~
amclennon
> (i forget the English word) so if you do get sick it's going to cost you
> 2,500 CHF before the insurance kicks in

I think the word you're looking for is deductible

~~~
robocat
In NZ the word is excess e.g. The excess is $500 means the customer pays the
first $500 of any claim. I assume deductable is a North American term.

~~~
brianwawok
Correct

------
jondubois
I'm not so sure that it's a safe bet to assume that stocks will keep going up
by 10% per year every year in the future.

I think we've already reached a point where people are starting to complain
about corporations getting too big and becoming too powerful.

What drove increases in the stock market in the past few decades has been the
replacement of many small businesses by few large corporate entities.

Economies of scale have been a double-edged sword; while they have allowed
consumers to purchase non-essential goods and services (such as electronic
devices and appliances, holidays, clothing, entertainment...) for cheaper,
they have also been responsible for driving up the prices of essentials likes
housing, transport, electricity, medicine, education, etc (e.g. by shifting
the workforce to big cities where corporate HQs are)...

I think we'll reach a point in the near future when city-dwellers will start
running out of resources to support basic living essentials and this will
force them out of cities - This will drive real estate prices down but it will
also drive down stock prices which depend on that lifestyle.

I think the bubble that we're in now affects every person on the planet so
if/when it bursts, the repercussions will be massive.

~~~
walshemj
yeh a lot of investment pros are worried that the market is getting to high I
am wondering if I ought to take some of my profits and buy gold etf's or just
got cash and wait for the fall to buy back in

~~~
massaman_yams
Professionals are often wrong, and timing the market is more difficult than it
might seem - in no small part because many investors are unable to prevent
emotions from affecting their trading decisions.

That said, it's entirely possible that the market is irrationally high; the
question then becomes how long it can remain that way. There's a famous Keynes
quote - “The market can stay irrational a lot longer than you can stay
solvent.”

If you do think stocks are overpriced, it may be advisable to create a
disciplined strategy for profit taking - selling a few percent of your net
assets each time the market increases by, say, 10%.

~~~
TheAdamAndChe
I seriously wonder how index funds have affected the volatility of the stock
market. The stock market has been growing independent of popular sentiment or
trust in growth, which makes me wonder if the growth is driven by a massive
number of people automating their investments through index funds and just
forgetting about it.

------
joshuaheard
A couple flaws in the article. If you don't buy a house but buy stocks, you
will pay rent. According to the numbers in the article, this nearly cuts the
stock return in half. Also, the article states you will lose money on the
depreciation of the building, but does not take into account the appreciation
of the land. The land appreciation is highly leveraged, as well, since most
people typically place only 20% down on the property, but you gain the
appreciation on the gross price of the estate.

But I would say that, here is Seattle, and probably all along the West coast,
you do have foreign investment, mainly from China, driving up the cost of real
estate.

~~~
s3nnyy
OP here.

I think I wrote:

> "the land doubled in value and is worth 200k CHF"

Even if you add up not having to pay rent and possible sale of the house (on
which y) you would still end up much better with stocks:

House: You buy the house, after 30 years let's say the value stays the same:
You own 500.000 CHF worth of house. (Assuming you had no repairs and the value
stayed the same, which is VERY optimistic). You sell the house. you pay a
_whopping tax on that_.

Stocks: You paid rent of 1600 CHF (numbers I used in the article). Within 30
years, you burn ~500.000 CHF on rent but you make 4-8 million CHF with
conservative stocks assuming a 7-10% compound interest rate. In Switzerland,
you sell this stock _tax-free_.

Is there anything I am missing?

~~~
neffy
The article is also assuming exchange rates stay the same over that period.
Unlikely.

~~~
jpatokal
If your crystal ball can forecast future exchange rates accurately, you can
ignore all other investment advice and make millions off forex.

------
jldugger
> A financially rational person would consider buying a house if the P/R ratio
> is 15 or lower.

How does one go about calculating that? Or reading someone else's
calculations? For real estate prices I can check out the Case-Shiller, for P/R
I got nothing.

~~~
s3nnyy
I linked to that source in the article:
[http://affordanything.com/2015/11/24/is-renting-better-
than-...](http://affordanything.com/2015/11/24/is-renting-better-than-buying-
should-i-rent-or-buy/)

~~~
jldugger
Ah, I figured that underline was for emphasis. Sadly your source doesn't cite
its own sources.

It's pretty rare to see a home both for sale and for rent, so you'd likely be
comparing oranges for sale with apples for rent. A lot of the magic of Case-
Shiller is in finding valid comparables over time, so I'm hoping someone has
put together a similar time regional series for rents themselves. Maybe not --
it's not like there's a huge market for derivatives on rental properties.

------
yvan
Well, if I have to buy a property in Switzerland, it wouldn't be to make
living for ma retirement, but more for not to pay a crazy rent. A property
which you rent for 2.2k is easily 1.2k in mortgage, which means if you are a
owner, you're making 1k per month and in the top of it, if you play it well,
you could lower much more your taxes.

At the end, I pay fewer taxes (I'm not expecting ever to finish paying my
property in Switzerland), I pay less rent and I invest more in stocks.

------
eldavido
For anyone reading this in the US: don't take this at face value.

This (my opinion) is coming from someone who's indifferent between renting vs.
owning, so is trying to make the decision purely on financial factors.

Reasons why this article does't apply in the US:

(1) The "eigenmietwert" the author writes about is known as an "imputed income
tax". The idea is, most assets generate income: bonds pay interest, stocks pay
dividends, etc. A house, which is an asset, always generates economic benefit,
it's just a question of the owner (who lives in it), or to a renter (who pays
rent). When you think about it, it's kind of absurd that in the US, an owner
pays income tax if they rent their house to someone else, but not to themself.
Taxes like this are an attempt to level the playing field.

(2) The US allows homeowners to deduct mortgage interest (up to a point) from
taxable income. Why you can't deduct interest on credit cards or auto loans,
but you can on mortgage interest, beats the hell out of me?

(3) The US taxes capital gains. California, where I live, has a state-level
_surtax_ on capital gains. I'm not sure whether the author is correct about
Swiss tax treatment of capital gains, but have no reason to think he's wrong.

(4) Interest rates are artificially cheap in the US, as some others have
pointed out, due to GSE interference in the mortgage market. There's
absolutely no reason Fannie/Freddie should encourage people to buy houses. I
also think it's ridiculous that the FHA uses taxpayer funds to let low-income
borrowers get cheap loans. Let them rent. Renting isn't some kind of hardship,
in many ways, it's better than owning, you have less downside risk and it's
easier to relocate for a job.

(5) In places like California, where we have Prop 13, property taxes don't
reassess -- ever. So, barring a sale, someone who bought a house 30 years ago
pays essentially what they paid in property tax then, now. This encourages
exactly what you'd think, people move less and try to stay in their homes as
long as possible, even performing absurd tax gymnastics like "one-wall
remodels" to avoid having their tear-down "remodels" reassessed.

(6) "1031 exchanges" and other gimmicks let property owners sell their
properties--AT A GAIN--and trade up to a larger place, without ever paying
tax. How crazy is this!?

(7) In most jurisdictions, property taxes are federally deductible; I get no
such deduction as a renter, though it could be argued that my rent is lower as
a result (due to the owner's tax writeoff).

At bottom, this stems from a cultural attitude we have in the US (really the
entire Anglosphere) that homeownership is some sort of God-given right/natural
thing to aspire to. I wish this attitude would change. I wouldn't mind renting
but it's hard to justify given how tilted US law is toward homeownership.

~~~
uiri
Which other "Anglosphere" countries promote home ownership the same way that
the US does with e.g. mortgage interest deductions? There are many pairs of
otherwise culturally similar countries with differing policies on this (e.g.
US & Canada, Belgium & the Netherlands).

~~~
J-dawg
Could you explain what you mean by mortgage interest deductions? Does it mean
that mortgage interest can be deducted from taxable income? Even if that
income is unrelated to the property?

In the UK landlords are allowed to deduct mortgage interest from taxable
rental income, but this is currently being phased out. (A good thing in my
opinion)

~~~
bartc
Right, in the US, you can deduct mortgage interest and property taxes to lower
your taxable income.

There is a mortgage cap of around a million dollars where the deduction ends,
which is only relevant in a small number of real estate markets like
California, Seattle, New York, and so on.

~~~
jacalata
Note that this only applies to the mortgage on the house you live in, not for
landlords.

~~~
toomuchtodo
You can deduct the mortgage interest on a rental property against the income
from that property.

------
RHSman2
In switzerand, you buy a house to live on, not to profit on. First 5 years you
are heavily taxed if you sell. When I got my mortgage they capped morgages as
they knew there was a bubble starting. As a single, somewhat lonesome country
the objective function is to manage stability. (Not that I know anything about
economics)

------
j7ake
So what happens when if you move back to USA would you still get advantages of
0 percent capital gains? Or would you have to move everything to the USA ?

~~~
s3nnyy
Good question. I think usually you are taxed where you live. Unless you are a
US citizen, then you are taxed also by the US if you earn more than $100k.

(As an American, if you open a bank account in Switzerland you have to declare
a special form, stating that you will correctly declare taxes to the US etc. I
think you even have to fill this form if you hold a green-card or ever
worked/paid taxes in your life in the US).

~~~
gilj
One of the very first things they ask you when you open a bank account in
Switzerland is whether you are from the US. When I was asked this, and I asked
them why this was important (I'm not from the US btw.), the person on the
other side of the table told me that if I was, she'd have to get her manager.

~~~
s3nnyy
Yeah, all that changed heavily since the bank-secrecy laws were removed in
2013. Some decades ago it was probably really like in Wolf of Wallstreet:
[https://www.youtube.com/watch?v=ndTbiDQjbiE](https://www.youtube.com/watch?v=ndTbiDQjbiE)

People coming here with suitcases full of money was one thing but a totally
other level was that some Swiss bankers really flew over to the US with
encrypted laptops "to get new customers".

------
JamalMolla
See, it’s about right approach and method to things, it is irrelevant whether
its real-estate, stocks, binary or Forex, it’s just for right way. As a Binary
Option trader, I have found things relatively easier thanks to binopt.co.uk,
which not only explain about the ways of trading but also strategies and help
us with picking the BEST broker.

------
NiklasMort
rich people problems

------
notadoc
> While in the US you have regions where people make $50k a year and a house
> costs $50k — $100k

LOL, not on the coastal states.

If it's the west coast, people earn 50k while starting house prices are 500k+

~~~
s3nnyy
In the article, I explicitly mention cities like San Antonio, Houston etc. and
link to my source: [https://www.numbeo.com/property-
investment/rankings_current....](https://www.numbeo.com/property-
investment/rankings_current.jsp)

~~~
notadoc
Texas is on the Atlantic gulf coast, it is not on the west coast of the USA.

As far as Houston goes, look for yourself:

[https://www.zillow.com/houston-tx/houses/](https://www.zillow.com/houston-
tx/houses/)

A dilapidated tear down in an undesirable area is about what you'll get for
under $100k in Houston

[https://www.zillow.com/homedetails/6858-Evans-St-Houston-
TX-...](https://www.zillow.com/homedetails/6858-Evans-St-Houston-
TX-77061/27840739_zpid/)

Anyway, on the west coast of the USA housing is extraordinarily expensive and
many multiples of median income.

------
alecco
Buy a small place enough to live. If you take a mortgage pay it as soon as
possible to be debt-free. Then invest in diverse things with best return while
being tax smart. Perhaps barbell method.

~~~
ryanbertrand
Switzerland makes home owners pay taxes as if they rented the house out for 12
months each year. This could add a nice chunk to your net cost of owning.

~~~
corford
Which I guess most landlords would simply pass on to the tenants?

~~~
tonfa
If they rent it they pay income tax anyway (or rather the company that owns
the place does). The "virtual rent" added to income is for people who own the
place where they live.

Switzerland is not very home ownership friendly, at least there are very
little tax incentives for it (personally I'd rather have people invest their
wealth into productive things rather than real estate, so I find it good). In
large cities most places are owned by banks/insurances/other real estate
companies and rented out.

~~~
gnaritas
I wouldn't call not giving special privileges to home owners over renters
unfriendly, I'd call it neutral and fair.

~~~
jacalata
They didn't say it was unfriendly, they said it was not friendly. So, neutral.

~~~
gnaritas
That's a distinction without a difference, they mean the same thing. Not
friendly does not imply neutral, it implies not friendly. If I said don't walk
through that neighborhood it's not friendly, you would not interpret that as
saying it's neutral.

