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The World of Neubau

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During my months of searching, I saw many, many types of houses and flats on my search sites… but I also saw many neubau (new build) objects in the listings. I was a little wary of neubau because I’ve read some horror stories about them on forums, but at the same time I was attracted by the offers available.

Image via Erstbezug.ch

The Bad:

  • Hidden costs snowballing
  • Asshole contractors with red tape
  • Delays
  • Cannot secure a mortgage until later, interest might go up

The Good:

  • First come, first serve: Minimal fighting to buy
  • Custom changes, options galore
  • More time to save for a bigger deposit
  • Everything is NEW

A few people have vented their frustrations with neubau online, so I had a pretty clear idea what we might expect if we go this route. People complained about buying a flat for one price and then paying lots of money on changes and having the flat cost a lot more than they anticipated.

I also heard a lot of complaining about the entire process of working with contracting firms. Some horror stories had contractors pressuring clients for a lot more money before they would finish and others had extreme delays that put the buyer out of home after their move-in date was postponed.

To be honest, it did seem like neubau is a headache from what I heard. Lots of people warned others to just not try and deal with it. So why did we keep looking?

Choice. By choosing neubau, we could totally avoid the vicious bidding wars on houses and flats in Switzerland. There would be no first, second and third round of bidding. If you want a neubau flat it is relatively simple: pay a fee to reserve, sign a contract and start paying your deposit.

In essence, all we had to do was decide on a flat before someone else did. Then the flat would be ours, no questions asked.

In addition to avoiding the war on ownership, we could customize a flat to meet our own preferences and needs before it was built and when we move in, everything will be brand new. Buying something totally new was a major selling point for Kay, who didn’t want to feel like he was downgrading if we moved out of our comfortable flat in Zürich.

We also calculated that if we would have until the flat was done to save for our mortgage, we would be able to pay a significantly larger deposit and therefore we could buy a bit more expensive flat than we would have been able to at the beginning of 2012. The risk was that when our mortgage would start in 2013, the interest rates may go up.

Neubau still sounded right for us, so while I kept searching for potential existing houses, I started focussing more and more on neubau projects.

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Shopping for houses

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Despite all the scary figures I mentioned earlier, I was confident that with our savings we would be able to buy some kind of modest flat and profit on this extremely low interest.

I spent hours on Comparis looking at houses and flats. We couldn’t afford anything besides a shoebox in downtown Zürich, but there were many flats outside the city and even entire houses that were possibly in our budget.

Having been raised in Switzerland, Kay had the notion that you don’t buy property unless you are 40 or have kids. (That’s not us.) It took some time to convince him that we don’t have to fit into the stereotype for buying to be an advantageous financial choice.

The big question was size and location. Sure, we could sort of afford a 6.5 room apartment (= 5 bedroom flat) or even a 7 room house complete with garage, basement, backyard and everything, but that would mean sacrificing on location.

We do like living in Zürich and realistically, in the next 20 years we will probably change our jobs a few times. With that in mind, we are not quite in a position to commit to a small town an hour and a half away from Zürich city by train/bus.

Who in their twenties wants to worry about catching the last bus back to the middle of nowhere at the end of the night? Not us.

We have to be close enough to Zürich that if one of us would have to get a job outside, we would not have an impossible commute. Buying a car to save on commute time would also kind of negate the “saving” aspect of buying a house.

So we started limiting the search to flats in the vicinity of Zürich city, under 20 minutes to the main station by train. I mean, we just don’t need a house right now. As much as I think it would be cool to have 5 bedrooms and build a photography studio, we just don’t need that much space right now.

I saw a few older flats that could possibly be contenders, but when Kay and I visited a 3 bedroom 80 sq m flat (861 sq ft) it felt cramped and although it was technically IN Zürich, it was kind of a crap neighborhood with nothing going on around it. It was depressing.

Kay was really unimpressed with the old interior and the smell of smoke and other places we saw had 30 year old windows or unfinished interiors that would all require possibly hundreds of thousands in repairs. Some had winter gardens (like an enclosed glass balcony) but no real balcony, aka no grilling. It was always something. And none of the locations were really spot on.

Some older flats also come with “Baurecht“, which basically means somebody owns the land your flat or house is on. They have a 20-100 year contract with people to rent this land from them to build on, and you might end up paying like 400-1000CHF a month just for renting your land. It’s a pretty unattractive detail and makes it hard to sell your house if you do get suckered into a deal like that. You’ll never pay 300CHF a month in mortgage costs if you’ve always got those bloody building rights to deal with.

With all this information, we just weren’t sure buying a fixer-upper or an older flat sounded like a good idea right now.

Up next, we discover Neubau!

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How to buy a house in Switzerland

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When I found out how low people’s mortgages were with 1-2% interest rates, I was determined to figure out how buying works. When you break it down, it’s not that hard…

1. Find a place you want to buy.

2. Deposit = 20% of the sale price

20% is the magic number here. The Swiss are rather reserved, hence the large number. I have heard cases of people negotiating the bank down to 15% or even 10%, but with the economic situation turning a little in the last year, many banks are sticking to the 20% rule and the fact is, if you cannot afford to give them the 20% (even if you negotiate down to 10%) then they will not loan to you.

3. Calculate the affordability

The same way that Swiss calculate if you can afford your rent by making sure it is 1/3 or less of your monthly salary, they make sure that you can afford buying a home too.

Interest rates might be historically low right now, but every bank uses a simple method to figure out if you earn enough money to live comfortably with a mortgage. Affordability rates are based on 5% interest regardless of the current prices. If you cannot afford to pay a 20% deposit and 5% interest mortgage, the bank will not back you.

Obviously if interest is at 8-10% you would also need to be able to afford that for the bank to lend you money, but since rates are close to zero right now, every bank is calculating based on the average 5%.

To figure out your monthly costs you can plug everything into a simple Excel sheet and run the numbers to see if buying makes sense for you. Along with monthly interest payments, you need to amortize your mortgage by 1% monthly. The typical Nebenkosten (utilities) you normally pay along with your rent are estimated around 0.7% of your property’s value along with a renewal fund of 0.3%. Flat owners pay into a communal renewal fund to fix things like roofs and home owners save to pay everything themselves.

So, that’s another 1% on top of your mortgage and 1% from the sale price. The total monthly payment still needs to be under 1/3 of your monthly income in the 5% model for a bank to consider this a safe purchase.

Here is a quick affordability model on a 1 million CHF house:

Swiss Affordability Model

If one has the 200k capital for the downpayment, buying 1 million CHF houses is not actually the most crazy thing in the world right now. It would, however, require an annual household income of approximately 180,000 CHF. (4583.33 CHF X 13 months salary = 178,749 CHF)

But when I was researching house buying, I learned another important lesson: Not every house or flat in Switzerland costs millions! There are actually a handful of flats available for 300-500k CHF as well as many more in the 500-800k range. What does the affordability look like for a 500,000 CHF flat?

Swiss Affordability Model 2

Once you have the 100k downpayment, buyers would only have to an annual household income of 90,000CHF to afford a home with this price. And 1250CHF a month on the current model is less than half of what we currently pay for rent. Numbers like these are what turned me on to looking!

The affordability model can also be used in reverse. To find out how expensive of a home you can afford, just multiply your savings by 5 to see which houses you can afford. With 80k you can probably afford a 400k house. With 150k you could afford a 750k house.

4. Make an offer

The fun part of making an offer, countering, and most likely raising how much money you wanted to spend. The real estate market is pretty tight here and most sellers enjoy a couple rounds of offers from bidders fighting to buy a house.

You can be sure that if you buy a preexisting house in a nice location, there will be many people looking to buy it. Some people spend years looking for a house to buy and it’s very likely that your house buying experience will be filled with a lot of heartbreak, unless you are able to shell out a lot of money.

5. Finding a mortgage

Often people will visit some banks before they start looking to buy homes to know that there are already financial institutions who will support a purchase.

After you find a place and agree on a price (Hah! Easier said than done!) it is time to find the best mortgage. This is where you can shop around for the best deal, with lenders bending over backwards to make you their client.

6. Closing and handover

When you get through all the complicated shit of agreeing on a sales contract, having a lawyer or insurance agency proof the contract and recommend changes, house inspections, and a bunch of paperwork about the house and land dating back hundreds of years, you will need to get everything notarized to make the sales contract official and agree on a payment schedule and handover process.

Notary costs usually range around 1.5-2% of the sale price, but depending on what kind of house you buy you might also have to pay for land register and permit applications, which could take the number up to 2-5% of the sale price.

Payment schedules vary depending whether you are buying a new or old house. Older houses might require a small downpayment and then the remaining amount paid when your permit is approved. For people building, there is usually a large downpayment, halfway progress payment and then the final 1/3 or so is due when the keys are handed over.

Once you understand how much you can afford, the whole process is relatively straight forward. Be prepared to spend a lot of time visiting homes and building sites and even more prepared for all the paperwork that will come your way if you decide to purchase.

How does the buying process vary where you are from?

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Dreaming the impossible

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For the first five years in Switzerland, I assumed that I would never, ever be able to afford a home here. I mean, when I first started I was earning 200CHF a week as an au pair. There was no way in hell I’d ever have enough for a 200,000CHF deposit.

Swiss House

After I changed jobs, Kay and I would still chat about it from time to time. His parents own a house and I was vaguely interested in how the buying process works here, but I didn’t understand it. Kay explained that the aim was not to own 100% of your house and that you would always owe the bank money.

That just didn’t make sense.

I put my house-buying dream up on a shelf for a long time and forgot about it. Years rolled by, we got married last year, and somewhere around November/December, two things became important:

  • After three-four years of saving from our big boy and big girl jobs, we were actually starting to have a sizable chunk of money.
  • Everybody was talking about the crazy low interests rates in Switzerland.

When I say “crazy low” interest, I mean it. Interest rates effectively dropped to 0% for Libor mortgages in September/October 2012. That doesn’t include the bank’s cut, but it was enough to pique my interest.

Fixed mortgage rates were hovering around 1.5% and I learned that my FIL’s mortgage payments were about 1/10th of our monthly rent. With that knowledge, I had to at least figure out how it all works!

Homeowners, what got you interested in buying?

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How to rent a flat in Switzerland

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I mentioned how 70% of the population in Switzerland rents, but did you know that it is estimated that only .06% of the flats in Zürich are vacant? That’s not a typo. 99.94% of the flats here are taken.

TMLSS: It’s hard to secure a flat, especially for a good price.

zurich attic flat

This is a short (long?) guide about how to rent here based on our experience.

Step 1: Prepare your application documents (BEFORE looking for a flat)

A. Go to the local registry office and request a “Betreibungsauszug” if you have been in the country 6 months or longer. This is basically a piece of paper that says you don’t owe anyone any debts and without it, you are often very unlikely to get a flat. For newcomers who do not yet have a debt free history within the country, this can be especially crippling because without this paper… you may appear untrustworthy to a landlord.

B. Have a copy of your residence permit/work permit and passport or your ID if you are Swiss. Please note, residents with temporary permits (L) are also very unlikely to be accepted for a flat, but for some people this is their only option.

C. Copies of the last 3 months pay slips from work or a letter from HR stating your salary. In general, you are not allowed to rent a flat that is more than 33% of your salary.

D. If you have a letter from your HR or previous landlord, make sure you have copies ready. Also prepare contact details (phone numbers) for any references you wish to include on your application.

E. Start preparing a cover letter for your applications which you can modify for different flats. Write about yourself, why you want the flat and why you will be an excellent tenant choice.

F. It is not required, but I recommend including a photo of yourself as well.

Step 2: Look for a flat

Make a budget around 1/4 to 1/3 of your monthly salary, but not more. Landlords often will not rent to you if you earn “too much” or “too little”. Start looking for flats on sites like www.homegate.ch, www.comparis.ch, www.immostreet.ch and the local newspaper. Tell everyone you know that you are looking for a flat and ask if they know anyone that knows anyone that knows anyone. Friend connections are still the best way to get the early scoop on a cheap flat up for grabs, but most of us have to do the legwork on sites like homegate and hope it works out.

Step 3: Visit

Almost no landlords here rent flats without meeting tenants first or knowing they have viewed the apartment in person. Either make an appointment with the current tenant, landlord, or show up for pre-scheduled flat viewings listed online.

During the visit it is important to ask all your questions about the flat. Here are some of our favourites:

  • Why are you moving out?
  • Is it a quiet neighborhood?
  • What are the neighbors like?
  • Is this a smoking building? Do you smoke?
  • Is there a cellar in the basement and may I see it? (Cellars or attics are pretty standard with flats in Switzerland)
  • What are the utilities like?
Step 4: Apply IMMEDIATELY

Now this step is crucial, so pay attention.

If you show up to a flat viewing, there may be 200 other people there. That’s truly happened to me before. 200. People.

It is important to show up to viewings exactly when they start and to post your application or turn it in immediately. This is why it is so important to prepare your paperwork ahead of time. If you like the flat and they have applications available there, fill it out and turn everything in together as soon as possible. Same day if possible. Your renting livelihood depends on it.

Renting applications generally ask for all applicants’ citizenship, age, gender, personal address, work address, phone number, reference numbers, how much you earn, if you have children or not, if you have pets, and even if you play an instrument.

If you hide the fact that you have a dog and you play the piano, the landlord will not be very happy later on and they may ask you to move out because you are violating their terms of agreement. Also, be prepared to have all your references checked up on. They are very keen to have a nice tenant with such a large pool to choose from.

Step 5: Wait for news

Most landlords have already made up in their mind what kind of tenant they want. They may be looking for a single male, single female, a couple without children, or a family, but you can be sure they will not tell you what kind of person they are looking for. That would be too easy!

Applying before anyone else gives you a small leg up because they often give flats on a first-come-first-serve basis if you meet their qualifications.

Points may be taken off if you are an unmarried couple because the landlord is wary about a possible breakup, families with small (noisy) children, roommate situations because again the landlord is wary of people moving out, and anyone with a pet or loud musical instrument is going to have difficulty finding a landlord that accepts them.

Step 6: Rejection

Kay looked for flats for six months after he finished university before he found one he liked that agreed to rent to him. When we moved in together, we searched together for 7 months before finding a flat that would accept us.

We went through a lot of rejections. We weren’t sure if people were unhappy that we weren’t married or didn’t have kids or that we earned too much or too little. There’s never any feedback on why you are not accepted.

Repeat Steps 1-5 until you can make it past Step 6.

Step 7: Acceptance

Hallelujah! You thought this day would never come.

Usually when a landlord agrees to rent, you will meet with them or their agency to sign a contract after you agree on a move in date and give your deposit into a 3rd party bank account that neither of you have access to.

Deposits are usually 1-3X your monthly rent. If you are renting a modest 2500CHF one bedroom flat in Seefeld, your deposit just might be 7500CHF. (That’s over $8000 USD at this time.)

Rent is also due upfront, not at the end of the month… so when you move in you will usually be required to give either 3 or 4X your monthly rent unless you can negotiate a 1 month deposit. For a 2500CHF flat, this would be a whopping 10,000CHF!

But don’t worry… employers are often friendly and will loan you money to pay for your deposit if you are just moving here for the first time. And fret not, even people with dogs and pianos or unemployed fellows can find a flat. You just need to persevere. 🙂

I’ll get into taking over and leaving a flat in another post. 😉

How complicated is the rental process in your area?

*All photos are personal unless noted*

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