Switzerland: a Revered Real Estate Haven

By Alex Koch de Gooreynd, Partner, Knight Frank 

Introduction 

Switzerland remains one of the world’s most revered and sought-after locations, providing an incredible quality of life, outstanding education, a high level of security and a favourable tax environment. Increasingly, we are seeing buyers arriving from vulnerable areas of the world, where personal security and safety is less assured and therefore of paramount importance, with tax increasingly becoming a secondary consideration. The Knight Frank’s Swiss network now extends to 13 offices throughout the country, covering the major regions where clients would consider such a relocation. 

Increasingly clients come to Knight Frank having received recommendations from their advisors to move to Switzerland for tax purposes without full knowledge of the varying lifestyle considerations that they need to make. The differences between living in the midst of the mountains and down by the lake each have huge advantages but are immensely different. We have, therefore, developed a guide throughout the country that offers clients an overview of the lifestyle choices available throughout these key cantons. 

Buying guide and permit considerations 

If a client is considering investment in a commercial property in Switzerland, there are no restrictions for such a purchase regardless of their nationality or residency. 

If, however, a client is considering a purchase of residential real estate in Switzerland, this purchase has numerous restrictions for foreigners, otherwise referred to as “Lex Koller”. This law makes it almost impossible for non-Swiss residents to purchase residential property in Switzerland unless they are located within the designated “holiday zones”. These zones are predominantly found in the numerous ski resorts as well as the immediate areas surrounding specific towns such as Montreux, Lugano, Interlaken and nearby Lucerne. 

Within all of these areas, the maximum size allowed is 200 square meters of official living space (this does not include balconies or basement areas) per individual, and typically the property cannot be sold for profit within the first five years. 

If, however, a buyer is considering relocation, it is a fairly simple procedure to request residency; although it can take a few months, especially if the applicant does not have a European Union passport. 

A second law was passed recently entitled “Lex Webber”, which limits the number of properties owned as secondary residences (either by a foreigner or a Swiss national) to 20 percent of the total housing stock of each village. This has naturally had a major effect on new constructions; however, the transfer of resale apartments and small chalets can trade as normal. 

The purchase process is in turn fairly simple with an independent notary presiding over the proceedings. The costs and taxes related to a purchase vary from canton to canton, but an average percentage is circa 5 percent of the purchase price. 

Market conditions 

Due to the permit restrictions, there are two very different markets in Switzerland, which in turn have performed in completely different ways over the past two to three years. Firstly, the market with relocating families taking a primary residence, and secondly, the holiday homes market within the ski resorts and around the lakes. 

The primary-residence market is often concentrated around the major cities and within the easy vicinity of the major international schools spread throughout the country. These properties tend to be with a value of in excess of CHF3 million, and the key drivers for clients taking such properties are often very different from those of clients considering Switzerland purely for holiday purposes. 

The holiday purchaser, while only able to focus on the ski resorts and the key areas around the lake, as mentioned earlier, has the option of properties that vary in price from CHF1 million and above. As the limit of 200 square meters usually will keep the price of such properties to below CHF5 million, there are instances in which chalets or apartments are divided into “two individual units” that can be purchased by two named individuals, such as brothers, cousins or just friends (not spouses), hence these properties can range in value with no upper limit. 

The residency market 

This market was badly affected by the global financial crisis with numerous companies deciding to lower their costs and relocate elsewhere and subsequently reduce the size of their teams in the region. The strong Swiss franc and the rhetoric coming from the various votes taking place over the past two years gave numerous clients cause for concern, and they opted not to purchase in such an environment, preferring to wait and see before investing. 

The more socialist side of the Swiss government has been increasingly vocal over the past two years with a number of motions to limit the number of foreigners permitted, a higher inheritance tax rate for wealthy clients and the cancellation of all preferential tax policies. In recent months, the liberal side of the government has become more vocal and rejected the various proposals made by the opposition. With the current tax environment maintained, the liberal side is going one step further with ways to encourage international investment in the country, such as a forthcoming motion to improve corporation-tax arrangements. 

This change in opinion has had immediate impact with an increase in activity in the primary-residence markets across Switzerland, with numerous international clients who opted to rent rather than to buy during the previous two years now deciding that the opportunity is there to move forward. Properties such as the apartments that Knight Frank is selling in the centre of Geneva at Number 1 Gevrey; these brand new apartments now completed are a perfect first step into this market. With prices starting at CHF1.75 million for the initial investment, this particular building has the added benefit of onsite concierge and underground parking, which is surprisingly rare in this country. 

At the same time, we have also seen the increase of clients considering the forfeit fiscal tax arrangement. This arrangement is a simple calculation based on a client’s anticipated expenditures in the country rather than taking into account their worldwide income. Naturally, a number of clients have sought this arrangement to ensure preferential tax conditions and subsequently will invest in a family house rather than a simple apartment. Such houses tend to be priced between CHF5 million to CHF10 million, an example of which is this fabulous property (asking CHF8.2 million) with breath-taking views located in the year-round resort of Crans-Montana within walking distance to the new international school. This part of the market has also seen vendors becoming more realistic in their pricing; therefore, for a number of our clients who are keeping a close eye on the market, their feeling is that now is a good opportunity to invest, as pricing is more sensible, and there are positive market conditions on the horizon. 

Moving away from Lake Geneva, clients are also considering the regions surrounding Lake Zurich, in particular the Gold Coast, which is the south-facing part of the lake where clients can enjoy spectacular views of the sunset and is also within a 15-to-20-minute commute to the city centre. While the lump-sum form of taxation is not possible in this canton, the overall lifestyle benefits far outweigh the potential tax savings. 

Alternatively, for those clients searching for a more relaxed lifestyle, the area surrounding Lake Lugano is also hugely appealing, with Italian lifestyle and Swiss efficiency. The nearest airport is either in Milan or the small local airport in Lugano, which can handle private jets or alternatively has regular flights to both Zurich and Geneva. 

The holiday market 

This market has been affected over the past three years by the Lex Webber ruling. In Switzerland, once a motion has passed, there is a three-year period during which the interpretation is written, and during this period there is considerable uncertainty as to how the law will be explained. Thankfully this process is almost at an end, and we will be able to see greater levels of certainty allowing an international client to buy a holiday home and feel confident that with a resale in five to ten years’ time, he or she will be able to deal with another non-resident without any concerns. 

Naturally this has affected the market conditions over this period, with prices in some of the ski resorts dropping by between 25 to 30 percent. 

The decision in December 2013 to de-peg the Swiss franc against the euro had an immediate effect, with the Swiss franc becoming increasingly expensive for international clients to invest in; however, these conditions have now returned to normal, and therefore, increasingly clients are looking at such an investment as a more sensible option compared to certain Eurozone regions. 

Increasingly clients are looking at holiday apartments that have some form of income-generation; therefore the property is not only for personal use, but there is potential for the property to work effectively to produce income to cover the majority of the annual costs. Therefore, ski resort areas in which there is a strong summer season are, of course, more popular than those more restricted to purely winter months. With this in mind, Knight Frank is selling a delightful four-bedroom duplex apartment within walking distance of the Savolyres lift in Verbier, where the potential rental income will comfortably cover the costs of annual maintenance and management, allowing a client to enjoy his or her property during certain weeks when not pre-rented. 

The opportunity 

The opportunity for clients today in the holiday-market sector across Switzerland is born due to the timing of the Lex Webber ruling being implemented imminently. The sheer levels of stock currently in the market in most resorts and lakeside locations give clients the opportunity of choice and potential negotiation on price; however as the Lex Webber regulations will no longer permit any future construction within these core locations, the sheer economics of supply and demand will naturally have an effect on pricing within the next five years. 

We are, therefore, beginning to see speculators arriving into the market looking for opportunities to invest within core ski locations, as they believe that not only will an apartment maintain a healthy income over the next five to ten years but has the potential for huge increases in capital value during the same period. 

The future 

For both markets, Switzerland will remain a key centre for the high-net-worth individual looking for security, favourable tax arrangements and a high quality of life whilst remaining incredibly discreet and private. These clients will continue to arrive from areas of the world where life is a little more challenging and security a little more unsure. The future changes to the non-domiciled status in the UK will no doubt drive a few clients to consider their options and formalise their offshore status, with Switzerland remaining at the forefront. 

Unlike 18 months ago, Switzerland is giving the impression that they are now welcoming such clients with open arms, and naturally we are on hand to offer advice with such a relocation.