Study: A home is as good an investment as shares
Keystone-SDA
Owning one’s own home is not necessarily cheaper in the long term than renting, according to a Swiss study.
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With residential property, a lot of equity is tied up over a long period of time. This is then not available for consumption or other investments, such as shares, said Raiffeisen Switzerland in the study “Real Estate Switzerland – 4th Quarter” published on Thursday.
However, apart from psychological factors such as a sense of security or self-fulfilment, which often play a decisive role when buying a home, this is the advantage of home ownership. In contrast to a rented apartment, a home is not only a consumer good for its occupants, but also – whether consciously or unconsciously – an investment good.
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Ownership is not just residential use
Home ownership generates a return that goes beyond that of pure residential use. This is primarily due to the fact that residential property normally increases in value over the long term. However, this additional return is often not included in traditional “rent versus buy” comparisons.
However, calculating whether buying a home is financially worthwhile or whether it is better to rent and invest your savings is very complex, writes Raiffeisen. For a meaningful comparison, many special features such as property gains tax or imputed rental value have to be taken into account.
Long-term investment pays off
However, the analysis by the real estate market experts at Raiffeisen Switzerland shows that, taking into account all relevant influences for residential property, an average annual return on equity of 7.2% has been achieved since 1988. This means that this investment only achieves a slightly lower return than that of a pure Swiss equity portfolio over the same time horizon.
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According to the cooperative bank, similar returns can also be expected for the future under realistic assumptions. “From a long-term perspective, home ownership is therefore practically on a par with equity investments, especially as the return is achieved with significantly lower volatility.”
Compulsion to invest for the long term
The biggest advantage of home ownership over equities is that its illiquidity forces owners to remain invested for the long term and simply ride out times of crisis, emphasises Raiffeisen chief economist Fredy Hasenmaile.
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Homeowners would automatically subject themselves to one of the most important principles of successful investing. The investment discipline imposed by home ownership usually leads to decades of continuous investment of a high proportion of assets and generates a handsome return.
To achieve a comparable financial market return, a tenant household would have to invest its assets in an extremely disciplined manner and not fall into the many psychological traps lurking on the financial markets.
Translated from German by DeepL/ts
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