Retirement living: stay put or downsize?

Author: Bernhard Bircher-Suits, FundCom AG

The Swiss real estate market is facing a challenge: young families are desperately looking for affordable housing in urban centres, while studies show that more than half of single-family homes in Switzerland are now occupied by just 2 people (or even 1 person). These houses are ideal for families, but rarely come on the market.

Another fact: 4 out of 10 homeowners over the age of 65 have more than 2 rooms that are not used, according to a recent study commissioned by the federal government. The rate of people over 65 moving house is also falling steadily and currently stands at less than 5%. After the children have moved out, parents usually stay in the large family home for more than 25 years. The “surplus space” or under-occupancy of the property rises with increasing age. As a result, generational change in the property market is being delayed, leading to a shortage of supply and driving property prices up even higher.

Why many older people hold onto their homes

But why don’t older people move out of their large homes and make them available to young families? One example is 83-year-old Annette Müller (name changed) from the canton of Aargau. She lives alone in her 6-bedroom house. She says: “I’ve spent my whole life here, I know lots of people in the community and I don’t want to move while I can still do everything myself.” Her children left home long ago and she only uses a small part of the property.

There is no question of her subletting, as the mortgage has long been paid off and, as a widow with a generous pension, she does not need additional rental income. She emphasises: “I enjoy my privacy and the peace and quiet of the house.”

When your own home becomes a burden

Many people share the desire to keep living in their own four walls for as long as possible. In its guide “Housing in older age”, Pro Senectute, the organisation for older people, writes: “The vast majority of older people want to be able to live in a familiar environment for as long as possible, even if they become ill or require assistance or care.”

But large houses or apartments that are not built for older age can become a burden: maintenance, gardening and cleaning require a lot of time and energy. The location can also be a problem – especially if important infrastructure such as shopping facilities or public transport is not nearby. And if a top-floor apartment doesn’t have a lift, this can be difficult for older people.

Obstacles to moving: higher rents and prices

Particularly older people who have lived in the same home for many years, and who want or have to move into a smaller apartment for various reasons, are confronted with sharp increases in rents and real estate purchase prices. In many regions, the asking rents for smaller apartments are higher than the existing rents. Property prices have also skyrocketed in popular regions of Switzerland over the last 20 years.

Financial expert Florian Schubiger, Managing Director of Hypotheke.ch, says: “In practice, it is often the case that staying in your own home is financially more attractive than moving to a smaller apartment. The sharp rise in asking rents on the one hand and low mortgage interest rates on the other have led to this situation.” For this reason, property experts also refer to large apartments as a “golden cage” in which existing tenants are trapped.

Alternative to moving: right of residence or usufruct

However, selling your home and moving is not always the only option. If, for example, you want to transfer your home to your children but continue living in it for as long as possible, you can do so in Switzerland by means of a right of residence or usufruct.

These options make it possible to transfer ownership while the parents continue to live in the property. A notarial attestation and an entry in the land register are usually necessary. Florian Schubiger warns that it is somewhat more difficult to find a really good mortgage for a property encumbered with a right of residence or usufruct. Financing costs are often a bit higher. 

Tax considerations when selling your own home

If you sell your home in order to move into a smaller apartment, you should bear in mind property gains tax. Taxation of profits can be deferred if you are moving to a smaller owner-occupied property. However, if the sale proceeds exceed the purchase price of the new property, the difference must be taxed immediately.

Advance inheritance withdrawal as an alternative

Instead of selling the house to a third party, selling it to your own descendants might be an option worth considering. If the property is sold for less than its market value, it is generally considered an advance inheritance withdrawal, which will be taken into account when the estate is later divided. The value of the property is then offset proportionally to the siblings.

When is the right time to move?

There’s no such thing as a perfect time to move. It depends on your individual life situation, state of health and financial circumstances. Here are some indications that a move might make sense:

• Physical difficulties: climbing stairs or carrying out heavy gardening work is becoming increasingly difficult and there are no options for structural measures (stair lifts, etc.) or help from others in the garden.

• Maintenance costs: high costs for repairs and renovations put a strain on a potentially tight retirement budget.

• Usage: many rooms are empty, but still incur costs for heating and maintenance.

The benefits of downsizing

Moving to a smaller apartment or a home suitable for older age offers many benefits:

• Lower costs: less living space means lower heating and maintenance costs.

• Less effort: smaller apartments are easier to maintain and clean.

• Accessibility: age-friendly apartments are often adapted to the needs of older people, for example with walk-in showers or lifts.

Practical tip: When you’re getting ready to sell your home, it’s a good idea to start planning in good time. Real estate markets are subject to fluctuations, and good preparation can help you find the best time to sell.

Step-by-step instructions: how to plan a sale and move

Valuation of your own home: get a realistic appraisal of the value of your property by a specialist.

Planning the sale: prepare the sale at an early stage in order to be able to react flexibly to market changes.

Choice of living arrangement: decide whether a smaller apartment, retirement home or shared accommodation is right for you.

Planning a move: Peter Burri Follath, Head of Communications at Pro Senectute Switzerland, says: “With far-sighted planning and a timely decision to downsize, the move can be optimised, both financially and practically.” Consider whether you want to rent a smaller apartment for a test run before you take the final step. Moving should be carefully planned. Use Homegate’s moving checklist. If you want to stay in your home for as long as possible, you should at least pay attention to the 2 most important points – comfort and safety within your four walls. 

How to stay safe in your own home in older age

Safety can be improved by removing obstacles, repositioning furniture, introducing better lighting and additional aids. A practical and accessible home benefits everyone: small children who come to visit and visitors with mobility difficulties. 

Making your home more comfortable

The indoor and outdoor areas should be as practical as possible. For example, there should be seating right next to doors and entrances. It is also a great help if the bedroom is close to the bathroom. The infrequently used office or guest room can easily be moved to another floor.

In summary: large residences offer many benefits, even in older age, but can also become a burden. The decision to downsize, sell or move out of your home should be carefully considered and planned ahead of time. Even with large rental apartments, it is important to check the new rental price of a suitable, smaller apartment before moving out. With a well thought-out strategy, the transition to a new phase of life can be managed smoothly.