It pays to revalue your real estate
Values such as amortization or maximum loan amount are generally based on the original purchase price of real estate. When planning renovations, extending an existing mortgage, or looking into bridge financing, it is advisable to have your property revalued by an expert.
These factors shape real estate value
The Swiss tend to stay in the same place. Most of us buy a property for ourselves and our families. And, once we have decided on a home, we remain loyal to it for more than ten years, on average. And there is a reward for this loyalty: Since the start of the millennium, real estate prices have increased dramatically. What’s more, real estate owners don’t just benefit from this increase in prices when they sell their property.
The value of real estate is determined using two main components: the value of the land and the value of the building. The proportion that each of these two factors contributes to the total value of real estate can vary greatly from region to region. In large urban centers, where the demand for residential property is consistently high due to the proximity to major cities such as Zurich or Basel, the land value makes up a large part of the total value of the real estate.
Low taxes, high real estate value
Conversely, in more sparsely populated, rural areas, the house or apartment itself will account for a larger proportion of the total value. Nonetheless: “Land price trends are, ultimately, strongly reflected in real estate prices. The price of land is the main driver,” explains Thomas Rieder, Real Estate Specialist at Credit Suisse. In addition to proximity to major cities, there is a second factor that strongly influences the value of building plots, says Rieder: The lower the taxes, the higher the price of the real estate.
Sometimes, revaluing real estate just isn't that easy
In contrast to building plots, which may increase or decrease in value depending on the market situation, buildings lose value over time. Rieder explains that, as a rule of thumb, the lifespan of a building is 100 years. To maintain the value of the property during this timeframe, regular renovation work is required.
Kitchens need to be replaced after around 30 years, and heating systems often only have a lifetime of 20 years. However, owners are sometimes not aware that the value of a house does not increase in correlation with their investment if individual components are replaced before this is actually necessary – purely for cosmetic reasons, for instance.
Revaluing real estate in favor of owners
Given the increase in the value of real estate in recent years, a revaluation can in fact benefit the client in many cases. However, it is not simply a matter of applying the forecast of further price increases of 2 percent for condominiums and 2.5 percent for single family dwellings to your existing real estate. This estimate from Credit Suisse only applies to new builds.
The increase in prices is fueled by the low key interest rates set by the Swiss National Bank, as was the case following the financial crisis. Should interest rates increase consistently again at a later point in time, the prices of residential property in Switzerland may in turn fall again. It is important for owners to understand these mechanisms. Particularly if you have lived in the same place for a relatively long time, the bank is likely to have the real estate in its books at the original purchase value, and this is the value used as a basis for calculations relating to amortization, interest, and maximum loan amount.
In recent years, we were able to structure many cases to help relieve clients.
Stefan Hollenstein, Head of the Mortgage and Lending Center in Region Zurich South
When it makes sense to revalue real estate
For this reason, it is important to request a revaluation by an expert following any changes – whether it be a renovation, a remortgage, or bridge financing. If the value of the real estate increases, the owner has more scope to finance any investment that may be required by increasing their mortgage. Even if the mortgage has to be increased to do this, the loan amount will not necessarily be higher.
Stefan Hollenstein, Head of the Mortgage and Lending Center in Region Zurich South at Credit Suisse, advises his clients to bring along all relevant property documents, such as their buildings insurance certificate, land record extract, up-to-date photos, an overview of their investment history, and their tax return, in addition to documents pertaining to their financial situation. “This has enabled us to settle many cases over the last few years – to the relief of our clients,” he says.