More and more people are buying residential properties, and this is often the biggest investment of their lives.
Low Interest Rates, High Prices
Switzerland is still a nation of renters. But the number of homeowners has increased sharply in recent years: The proportion now stands at almost 40 percent. According to Fredy Hasenmaile, Head of Real Estate Research at Credit Suisse, this development is being driven by high market rents and historically low mortgage interest rates. In contrast to just a few years ago, today buying is often better value than renting.
The flip side, however, is that the longer low interest rates last, the more the prices will increase for single family dwellings and condominiums. However, following strong price hikes in the metropolitan areas of Zurich and Zug, and in the Lake Geneva region, higher equity requirements due to regulatory provisions have shifted the price dynamic away from the upmarket regions to more affordable areas. So, overall the risk of a price bubble that could burst soon has decreased.
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The overheating tendencies noted by Hasenmaile are not the result of real estate speculation. They are caused by the high demand due to population growth, low interest rates and solid economic development. In the coming years, Hasenmaile expects real estate prices to remain high. Mortgage owners will need to take care if interest rates increase sharply, although this is not expected to happen in the near or middle term. His recommendation is to purchase residential property – and to exercise due care in the process.
For these reasons, it is worth drawing up a list of criteria for the home you intend to own and clearly defining what you can realistically afford: The purchase price should not exceed five times the value of your available equity capital. The housing costs should not be more than one-third of your gross income. You can find a calculation example here. (The example uses a long-term average mortgage interest rate of five percent to estimate whether you would still be able to sustain mortgage payments even if interest rates were to rise.)
Things Move Fast
Nowadays, internet portals are an important tool in the search for a suitable property. However, it is often possible to get information in advance about planned building projects from the municipality or from architects. Once you have found your dream home, things often move very fast indeed: As a future homeowner, you suddenly find yourself having to make numerous important decisions – and this involves much more than your choice of flooring or kitchen appliances.
One extremely important factor when buying your own home is whether the purchase price is appropriate. This can be determined by means of an independent property survey or a market survey within the framework of a personal consultation with your bank. Existing buildings should be inspected to see if they need renovating or if there are hidden construction defects, while, in the case of new build properties, building plans and cost estimates should be carefully checked. This applies especially to people that are not buying a turn-key property but instead are acting as builder-owners themselves. They should exercise great care from the moment they purchase their plot. A look at the land records and the zone plan provides information about the ownership structure, easements (such as rights of way etc.), and development opportunities. In the case of condominiums, potential buyers need to examine the condominium association's regulations of use very carefully.
These are only the most important questions that future homeowners have to answer – there are many more, and time is often very short. This is why it is a good idea to seek professional advice when purchasing residential property. It can most certainly save you a lot of money.
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