We resume our Buyer Guide series with a look at
Switzerland, which we last covered in late July when news of the repeal of Lex Koller was announced.
Where to Look
Although only a small country and, moreover, one that has a highly defined identity in public consciousness,
Switzerland does offer a number different themes for the investor/visitor. For skiers the choice of property may be decided by the appeal of particular resorts or concerns about the effects of global warming on lower altitude ski slopes. This is likely to increase the popularity of the most mountainous cantons, such as Graubunden (Grisons) or Valais. For other investors the choice may be a matter linguistic skills deciding whether they opt for a French-, German- or Italian-speaking district.
Although most of the country’s cities are relatively small they offer sound investment potential. Clearly, choices about location will be heavily influenced by the kind of property one wishes to invest in. For instance in some resort areas the potential investor may be restricted to co-ownership of an apartment block (see below) whereas more character may be affordable in less fashionable locations. UK investors have tended to favour the cantons of
Berne and Valais.
Snags, Points to Remember, Legal & Otherwise
The key point to remember in understanding regulations about residency and residential property in
Switzerland is the distinction between recognition as a resident through the B and C (for non EU nationals) permit system and permission to purchase property as a foreigner. Basically, acquiring a B permit gives one much the same rights as a Swiss citizen (in relation to property purchase and other things) and is supposed to entail residence in the country for the greater part of the year. For all other foreigners, ownership of Swiss residential property entitles you and your immediate family to live for up to six months of the year in the country (although only for a maximum of three months at a stretch) and the obligation to occupy your property for no less than three weeks a year.
As the majority of investors will probably be investing in apartment accommodation, it is worth pointing out that the Swiss equivalent of a condominium (propriete par etage) works on the basis of shared ownership of communal parts (through shares in a management company) and exclusive ownership of the defined residence. This sounds very sensible and the apartment owner has exclusive ownership of their own car parking, which should help minimise one area of controversy.
For those who associate home ownership with prosperity the Swiss residential property sector may be surprisingly wedded to rental.
Under the Lex Friedrich the individual cantons hold the power to set the quota for purchases of property by non-residents, so non-Swiss property investors should probably view
Switzerland as a group of micro-states and need to be careful not draw unwarranted conclusions about one canton based on experience or knowledge of another. For example, Lex Friedrich does allow for re-selling to other non-residents but this entitlement normally has to be applied for through a notary. However, in the cantons ofTicino and Vaud this permission is not required and in Valais (which increasingly seems to be becoming a special case) one must wait for five years. Investments are normally limited to 200 square metres per family.
An indication of the importance of local autonomy is the recent decision to stop sales of property to foreigners in seven communes in the canton of Valais for a period of 12 months (the whole of 2007). Presumably, the authorities are concerned that these areas are becoming dominated by properties belonging to absentees.
Local banks can be used to assist with property purchases either with loans (or agreed negative bank balances) to a maximum of two thirds of the purchase price, using the property as collateral, or by arranging a conventional mortgage, which has the advantage of lower interest rates. Interest rates seem to be decided in a manner which is akin to UK fixed mortgages (ie. for relatively short terms – five years is normal) but the stability of the Swiss economy should mean that variation is not too great. In the case of new build, payment is usually made in three tranches, the completion of the roof being the second ‘trigger’. The Swiss monetary authorities have a reputation for stamping out inflation so, though interest rates will normally be low, borrowers should not expect the real value of their loans to shrink fast through the Swiss franc losing its buying power.
The basic property tax is based on estimated rental values and is levied at the rate of 1.3%. In addition taxes on tourism (1.75% of value), land tax and national defence tax will be levied. Cost of living increases cannot offset property appreciation tax but the latter is reduced in proportion to the length of the period of ownership. Whether there is an upper limit on the number of years that ‘earn’ relief on this capital tax as in the UK – is unclear; comments on this would be most welcome. Inheritance tax is payable in all cantons except Valais (again) where direct descendants are not liable.
The imputed rental values of property is taxable in
Switzerland; with so many rental properties estimating notional rents can’t be difficult. Mortgage interest payments and maintenance costs are deductible (read more here [pdf]). However, the federal authorities are considering changing the tax regime in regard to imputed rental values, possibly in 2008 but Swiss law-making is highly consultative so a change may be a long time coming. The level of property taxation is relatively high by European standards.
What to Read
We can’t recommend anything about settling in
Switzerland but it is possible to master the ins an outs of Lex Friedrich in four different languages.