Whi said property is not a good investment?

It's expensive, but real estate prices have shot throgh the roof in recent years!
Nir Ofek, Jul 28, 2009 @ 12:39

 

A few people in the financial market I have spoken to have said that the Geneva housing market is very inflated. For example the move of Procter & Gamble to Geneva noticeably created alot of demand. It would only take a few organisations to move out of Geneva to decrease the demand.. and with outsourcing being popular, for example within a few UN organisations.. and with the crisis, it is unlikely that prices can increase even more. It is more likely that people will just buy in France rather than accept higher prices in Geneva.  It seems it costs a million for a good size, good location 2 bedroom flat. Why not just buy an excellent flat in Ferney instead for half the price (or even 1/3 the price). Or in Vaud with all the new builds there.

It seems that with the sharemarket low, it surely must be better to invest in Shares rather than property.

but I really dont know much, so thats why I posted the question. Let me know if what I say is full of holes.
jasepitt, Jul 28, 2009 @ 12:50

You raise fair points, and I am not a finance expert, so do not have a scientific reply.

But from the limited info I gathered, here's how I view things. I might be way off tho...:) 

1. Geneva rea-estate prices are indeed high. However, supply is very limited and demand is always growing. So there's a good chance prices will keep going up...It's un-likely the UN and P&G and the major Banks (who together account for most of the expats here) will pull out of Geneva. At the same time, more and more companies are coming in (McDo just announced they're moving their EU HQ over here). So yea, prices are crazy. But I think they'll get even crazier...(-.
2. The stock market will surely bounce back at some point, but it's hard to tell when and on which stocks. Who would have thought giants like GM would go under...For me, the market is still a bit too risky. But if you have an appetite for risk, and you can put your money to sleep for a few good years, there are surely some good buys out there (I wish I knew what they are tho!).

Seperate to all this, we're now trying to pull together a glocals seminar on 'is real estate a good investment', with experts. More on that soon...

Nir
Nir Ofek, Jul 28, 2009 @ 12:59

Its an interesting discussion. In effect both you and Nir agree on the recent price increases, but disagree on what it means for the future.



It may be unthinkable that a Co like PnG would pull out of geneva, but Mr Obama has made it pretty clear what he thinks about US companies with a base overseas for tax reasons, so who knows. The question is whether in that event, there are enough incoming companies to fill the hole.



I think the answer is definitely yes. I think the real problem though may be future interest rates. At the moment renters are becoming buyers partly because it is an easy decision; for even a 1m chf property many are paying less on their mortgage than they would in rent because rates are 1% to 3%. That is likely to change.



Also its no 'safer' to buy in VD or France because the same recent price increases apply, along with reliance on excatly the same factors for future demand. The only difference is the price entry point.



If I sound negative believe me im not, my firm has helped clients here buy in GE, VD, neighbouring France, the cote d'azur, Spain and the UK.



The important things are to try and buy a bargain, at auction for example; to make the most of the tax breaks; to find a property which has scope for improvement. All these things combine to protect you against a price correction.



Finally, investing in stocks etc is a whole different subject so Im not going to try, but the fact is that is possible to leave 2nd pillar and other assets still invested and still use them to contribute toward a property purchase.



voila, another world problem solved :D

Phillip



On the other hand GE is very popular

[quote]







A few people in the financial market I have spoken to have said that the Geneva housing market is very inflated. For example the move of Procter & Gamble to Geneva noticeably created alot of demand. It would only take a few organisations to move out of Geneva to decrease the demand.. and with outsourcing being popular, for example within a few UN organisations.. and with the crisis, it is unlikely that prices can increase even more. It is more likely that people will just buy in France rather than accept higher prices in Geneva. It seems it costs a million foragood size,good location2 bedroom flat. Why not justbuy an excellent flat in Ferney instead for half the price (or even 1/3 the price). Or in Vaud with all the new builds there.



It seems that with the sharemarket low, it surely must be better to invest in Shares rather than property.



but I really dont know much, so thats why I posted the question. Let me know if what I say is full of holes.[/quote]
wilycoyote, Jul 28, 2009 @ 14:50

Philip:

Thanks, helpful perspective.

So how does one even begin searching out for the good buys in this market?

Do the Regies offer this service, or is it mainly outside companies like yours? And, I have to ask: what's your company?

Nir
Nir Ofek, Jul 28, 2009 @ 15:00

It was just a few observations Nir, there should probably be a 15 page disclaimer attached :D



For clients who want to improve a property I refer them to a surveyor that specialises in development projects. To find the property we use an independent property search consultant.



Perhaps some regies offer a search service but i suspect that that largely involves calling round their competitors and trying to cut a deal. When someone is finding a property for you, I think he really should be working only for you, with no conflicts of interest.



The company's name is Artesia and provides broader wealth management services. In the case of property that means crunching the numbers, establishing the tax consequences & sourcing the best finance conditions, bla bla :).The website is www.artesia.ch .



Phil



[quote]Philip:



Thanks, helpful perspective.



So how does one even begin searching out for the good buys in this market?



Do the Regies offer this service, or is it mainly outside companies like yours? And, I have to ask: what's your company?



Nir[/quote]
wilycoyote, Jul 28, 2009 @ 16:01

what amounts are we talking about?



for stocks a 25% return on 5kCHF is at best a weekend off. If you're playing with 500mio, a 1% return is already a hefty 500'000CHF and that's a whole different story. But I know very few occasions where "promised" returns where realized.



With smaller amounts (i.e. under 10kCHF) there is always the FOREX market. If you have the time and nerves you can actually make quite an income... :cool:



I'm not a RE specialist but stones are always a good buy, especially in "hot" places like Tokyo, Paris, Geneva, Zurich. 400% returns are not uncommon...



I always listen to our analysts and do read their reports but at the end of the day analysts do not personally bear the responsibility for the investment, the managers are and real decisions are done on a professional hunch rather than fancy spreadsheets
swisskiss, Jul 29, 2009 @ 13:14

buy a seized tanker back from Somali pirates, re-sell the load to an unscrupulous oil trader that will be most happy to pay 50% off market rate, pocket the reward for returning the ship to it's owner and marry the daughter of the Ship's master... all you need is ca. 50kUSD...



not really a joke, not really.... :P
swisskiss, Jul 29, 2009 @ 14:46

The key here is 'Whats your time frame?'

There are very high transactional costs related to property which could outway any capital gain over shorter time periods. Also you can gain exposure to property through other means rather than direct investing (like buying shares in a property company, or buying a note tied to a property index). These don't have the same tax advantages, but do allow immediate withdrawl of funds. Also There is potentially a lot of supply coming on in and around Acasias (check the FT).

As for stocks, unless you are a professional investor, avoid single names. Yes, we all have freinds who fluked 100% in a company, but they conveniently don't mention all the others where they lost money. Do the research (or just check the web) and pick a fund. There is a huge choice, geographical, sector/ industry or size based. Again, though, markets can be/ are currently very volatile so if you need the capital in the next 2 years I would avoid stocks.

Where does that leave you? Banks currently are desperate for deposits and will offer you good guaranteed rates for defined time frames (3, 6 months, 1yr etc). Yes, this is boring, but its guaranteed. If you have money to lose you can play in single stocks or currencies or corporate bonds, but be aware as a small investor (I'm assuming you're investing maybe up to say 500K CHF) you'll need to shop around for the best commsssions and custody arrangements.

Personally, I think the best investment over the next 5 years will be hard assets (ie commodities). If you really want property buy UK or US. Quite why anyone would recommend buying swiss property (up 100% in 3 years versus say UK or US property -30/40% over 3 years) is beyond me...
Feehary, Jul 29, 2009 @ 16:14

oups might have to argue that one.



There is no capital gains tax on gains made on investments in property funds/trusts or companies, so they would be tax free. On the other hand selling a residential property is subject to a gains tax which only reduces over time.



That said, exactly which properties in GVA have increased 100% over 3 years ? Every report I have seen suggests 6 to 8% pa, as demand for normal properties (rather than those for the super rich) is consistent not overwhelming; only expats are buying, the swiss have been out for a while.



By normal properties I mean in the range 800k to 2m



Finally there was an implication in the orginal question that should property be the way to go, they were going to live in it and I did emphasize that they should make an effort to find something undervalued, for example at auction.



I agree with you about UK and US but not everyone can be bothered to deal with overseas letting agencies and currency issues.







[quote]The key here is 'Whats your time frame?'



There are very high transactional costs related to property which could outway any capital gain over shorter time periods. Also you can gain exposure to property through other means rather than direct investing (like buying shares in a property company, or buying a note tied to a property index). These don't have the same tax advantages, but do allow immediate withdrawl of funds. Also There is potentially a lot of supply coming on in and around Acasias (check the FT).



As for stocks, unless you are a professional investor, avoid single names. Yes, we all have freinds who fluked 100% in a company, but they conveniently don't mention all the others where they lost money. Do the research (or just check the web) and pick a fund. There is a huge choice, geographical, sector/ industry or size based. Again, though, markets can be/ are currently very volatile so if you need the capital in the next 2 years I would avoid stocks.



Where does that leave you? Banks currently are desperate for deposits and will offer you good guaranteed rates for defined time frames (3, 6 months, 1yr etc). Yes, this is boring, but its guaranteed. If you have money to lose you can play in single stocks or currencies or corporate bonds, but be aware as a small investor (I'm assuming you're investing maybe up to say 500K CHF) you'll need to shop around for the best commsssions and custody arrangements.



Personally, I think the best investment over the next 5 years will be hard assets (ie commodities). If you really want property buy UK or US. Quite why anyone would recommend buying swiss property (up 100% in 3 years versus say UK or US property -30/40% over 3 years) is beyond me...[/quote]
wilycoyote, Jul 29, 2009 @ 17:27

Here's the FT article:

http://www.ft.com/cms/s/2/358b9760-66a1-11de-a034-00144feabdc0.html

Apologies, I got the time frame slightly wrong it was 100% over 10 years, but the comparison is still valid as Geneva has hugely outperformed all western property markets over that time frame.

The point on tax is well made but the conclusion puzzles me. There is no capital gains tax on stocks and shares and as noted, there is on residential property. The transaction costs associated with buying property amount approx 5% of the value versus maybe .5% for a fund. If you are not living in the property you'll incur more costs letting it and keeping it up to standard.

I would agree that property can be a fantastic investment, but timing is everything. Just ask anyone who bought in the UK/ US in the last 5 years...
Feehary, Jul 29, 2009 @ 19:18

humm, 100% increase over 10 years is only around 7% pa compound. There has been only minute volatility so actually timing isnt important, only 'not buying at a wrong (ie inflated) price'.



The UK housing index shot up 200% between 1.1998 and 1.2008 and since then is only off 15%. Accepted, there are more exceptions, ie distressed properties to be had.



My conclusion on tax was that actually you were more right than you thought you were, but I dont think anyone buys a house in GE expecting to sell it 2 years later for a killing. Also, most material improvements to a property are tax deductible.



As for fund transactions costs, you may be able to deal for .5% but retail clients usually cannot. They dont have have access to institutional share classes and will pay a minimum of 1%, perhaps even 3% if they need advice.



Doesnt anyone else have a view on all this ? If not me and Feehary may as well go to the pub and bicker in private :D



[quote]Here's the FT article:



http://www.ft.com/cms/s/2/358b9760-66a1-11de-a034-00144feabdc0.html



Apologies, I got the time frame slightly wrong it was 100% over 10 years, but the comparison is still valid as Geneva has hugely outperformed all western property markets over that time frame.



The point on tax is well made but the conclusion puzzles me. There is no capital gains tax on stocks and shares and as noted, there is on residential property. The transaction costs associated with buying property amount approx 5% of the value versus maybe .5% for a fund. If you are not living in the property you'll incur more costs letting it and keeping it up to standard.



I would agree that property can be a fantastic investment, but timing is everything. Just ask anyone who bought in the UK/ US in the last 5 years...[/quote]
wilycoyote, Jul 30, 2009 @ 12:01

Phil + Feehary:

Good helpful discussion (although for a while there you guys did get too technical).

Now for a concrete question:

So if someone who does know much about the local real estate market and the local motgage market (like me!) would want to consider buying in GE, where should he start the process?

Nir
Nir Ofek, Jul 30, 2009 @ 14:55

Hi Nir,



Well just to get first impressions all the bank websites have loan calculators on them these days.



Everyones situation is different though and naturally the banks are only interested in selling their own products. So to arrive at best conditions (loan amount, rates, repayment schedule etc) theres no substitute for decent independent advice.



Once armed with a budget (one for buying in CH and one for France) its either a case of hitting the streets; going to see all the 'suitable' properties out there, or getting someone to do it for you.



A decent intermediary in this market should have access to local products, to get the tax breaks and be able to introduce you to tax specialists, surveyors, lawyers etc, to resolve any other buying issues









[quote]Phil + Feehary:



Good helpful discussion (although for a while there you guys did get too technical).



Now for a concrete question:



So if someone who does know much about the local real estate market and the local motgage market (like me!) would want to consider buying in GE, where should he start the process?



Nir[/quote]
wilycoyote, Jul 30, 2009 @ 16:10

I'm not sure dealing in sweeping generalities aids your argument. Of course there are good and bad fund managers out there and while your timing was good in property it was clearly poor in funds. The reason that funds are down is the same reason property markets are down; we're in the middle of the biggest economic recession since the 1930s. (Although its hard to know it in Geneva sometimes).

If this thread and associated posts prove anything its that before making an investment in any asset class (property, equities, bonds, commodities etc) one should do extensive research to ensure that you are not buying at the peak or selling at the bottom.

Its incredible how living in a property makes everyone an expert in property investing (a particular Anglo Saxon and Irish disease). People get ill but wouldn't treat themselves without advice and yet many people do more research  buying a car than making probably the single biggest investment of their lives...

Feehary, Jul 30, 2009 @ 16:14

The inheritance story is a bit shocking.



The trustees have a duty of care to the beneficiaries, in this case to appoint competent managers and express investment wishes and restrictions, in the mandate, reflecting the fact that its an inheritance.



The managers in turn might make poor timing decisions but they still have an obligation make asset allocations which reflect the mandate.



In either of these 2 parties have been negligent (rather thsn the lesser offence of mere incompetence) .. go see a lawyer !



OK, maybe a pro bono one :D





[quote]Well thank you for answering, had a feeling I might have to return to my needlework ;)



Sadly I had no control over my children's fund, it was held in trust and the trustees trusted the bank !



My previous experience with my ownfunds was because I made the error of allowing a private bank to take care of my portfolio, I learnt my lesson, I now take care of my own investments.



For a long-term investment I honestly believe property is worthwhile, I can remember taking tea thirty yearsago,with an old english lady in a small village in Switzerland, as we walked round the village afterwards, she pointed to certain houses 'that one I bought for Frs. 400.- , that one for Frs. 620.- she said' needless to say, she was enjoying a fruitfull retirement ;)[/quote]
wilycoyote, Jul 30, 2009 @ 16:49

Let's put all this stuff about property and real estate investment in perspective: real estate prices have grown mainly as a result of the growth in population and a spreading of wealth that has occurred around the world over the last thirty years or so. In 1974 there were about 4 billion people in the world and now there are nearly 7 billion. If we were looking at the change in population of rabbits no-one would give a seconds thought to the fact that population numbers go up and go down but for some reason it seems we cannot think the same thing about our own race; maybe its too philosophical for here but I'm not sure it is automatic to expect the world to continue supporting this growth in our own numbers for ever. So the fundamental driver for future price increases isn't obvious.



The great thing about property is that it happens to be the place that you live in so if it is cheaper or equal to paying the rent, any price appreciation is a freebie. Plus property or land tends to keep pace with inflation so you should be able to buy at least as much other stuff in a few years later as you could today with the money, which is more than can be said for most other assets. If you believe all this 'free' money that is being pumped into the world economies by governments over the last year or two will dilute its value, plus the political will to accept inflation exists (a dose of inflation would cure this incredible amount of stagnant debt in the world) then the possibility of inflation becoming a problem again in a few years time looks quite possible.



So-- property is a bit of an inflation safety net when times are unlear (and they are definitely unclear now) but its prices are driven by supply and demand like any other asset. Supply is fairly static and demand is driven by population trends and speculation.



So then we get on to war, pestilence.... place your bets or hide under the duvet!
hucklewoo, Jul 30, 2009 @ 17:54

 Have you read the book 'fooled by randomness'?  Of course I'm both a cynic and a firm believer in luck....  http://www.fooledbyrandomness.com/

hucklewoo, Aug 27, 2009 @ 12:34

 I was one who bought in the UK in 1998 and sold 5 years later making 100% , but I'm also the same person who bought in 1989 and saw the bottom fallout and made 0% after 9 Years.  Buying a house in the UK can be great if your timing is good.
britabroad, Aug 27, 2009 @ 15:47

 Britabroad:

That's why in 1998 you had all the ladies all over you, and in 1989 you were alone like a dog!

(-:



Nir Ofek, Aug 27, 2009 @ 16:03

 Never made any difference  :) .. I was married in 1989 , just made the 20th anniversary.
britabroad, Aug 27, 2009 @ 16:21

Hi,

I know a very interesting investment. To invest in a new winefund. You trade french physical wine.

Let me know if you want to know more.

 

/Camilla

camillabjork, Nov 23, 2009 @ 13:48