Buy property in the Zurich, Switzerland area?

Question

Dear all,

Feeling blessed and very happy to have found this great community. I am based in Zurich, Switzerland and work in the financial industry. I have been investing in real estate for a couple of years and currently own a multifamily property in Austria which is rented out and has been a good investment. In Zurich where I am living, property prices have been skyrocketing since years and it seems like that the property market is immune to any economic changes and crises (such as the pandemic, rising interest rates etc.). This is primarily due to the fact that Zurich is one of Europe's most important economic hot spots combined with a very high per capita income that has led to tremendous population growth since the early 2000's. Just as an example, prices for a standard apartment in a middle-tier area and around 20-30 minutes away from the city center start at around 13k-15k USD per square meter (1 square meter is around 10.7 square feet) . For investors, rental yields are unattractive (around 2%). However, the two factors that make ownership of property (and at the same time living in it) attractive are to benefit from tax advantages when using mortgage financing and to benefit from the continuous price appreciation.

I have been of two minds for a long time if I shall purchase property in Zurich (and allocate all my equity) for myself and benefit from the aforementioned advantages or consider to invest in property
in a lower price area in Switzerland where prices tend to be 30-50% lower than in Zurich (although around 1 - 1.5 hours away from Zurich which would mean that I would have to work partially from home which would be possible) Alternatively, I have considered investing in attractively priced property in a foreign jurisdiction such as Portugal, benefit from the much higher rental yields and continue to rent an apartment in Zurich.

I would greatly appreciate your thoughts regarding my question and thank you in advance.

All the best,

Thomas

Tom Fritz · Answer

Hi Mike,

Greatly appreciate your thoughts, very helpful.

Best,

Tom

Matthew Song Loong · Answer

Relocated to Zurich in May. Besides that I need time to raise capital for a next move in RE, I also want to wait to see what prices are going to do the coming year or so: They're already declining in quite some countries...

As for renting out, the tenant has quite some protection, which gives the landlord more responsibilities too, such as getting rid of the snow from the pavement around this time of the year...

Mike Lambert · Answer

Hi Tom,

We used to own property in Switzerland it it's always been expensive.

Personally, I'd never buy property in Zurich going forward for the following reasons:

1. It's never a good idea to get into an investment mainly/solely for tax purposes.

2. I believe markets like Zurich are going to crash very badly and it's just a question of time. Why? Because people had to live there because they had to be close to their office. But the office is disappearing (you mentioned yourself that you could remote work) and there's no reason to give up your financial freedom to live, buy or rent in Zurich when you don't have to! So demand is at high risk of dropping substantially while supply is at risk of increasing substantially at the same time as all this wasted office space might be converted into apartments. That would be the worst nightmare for real estate values.

3. Because prices are already so high, the upside is limited even if what I just mentioned doesn't happen. Therefore, your capital gains could be very limited and you will hardly make any income with a 2% rental yield. Putting points 2 and 3 together, you have an investment with limited upside potential and big downside potential, exactly the opposite of what you want to see in a good investment.

4. When the rental yield is that low, it basically tells you that it's financially much better to rent than buy and that leaves you with the opportunity to invest in a better market elsewhere, which is what you're considering.

What I mention about Zurich works for many other cities, including the likes of New York and San Francisco. How long are people going to still want to live there when they can make the same money in places with much cheaper real estate, rets, cost of living, much better weather and much less stress? Americans and Canadians go to Mexico and Northern Europeans go to Southern Europe. That's the kind of places I'm investing in.

Hope this helps!

Buy property in the Zurich, Switzerland area?

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