The devaluation of the Swiss franc may come as welcome news for second home buyers, but buying real estate in Switzerland is far from straightforward. 

“The country’s 26 cantons function like mini-countries with their own laws and regulatory authorities,” says Patrick Gruhn, founder of Rayan Partners, a high-end concierge based in Lausanne and Montreux. Zurich and Geneva, for example, are practically closed to non-Swiss, while Valais and Fribourg are considered to be the most “foreigner-friendly”. 

According to Switzerland’s Lex Koller rules, only around 1,500 resident permits are allowed per year. This means demand can outweigh supply by up to ten times, said Jeremy Rollason, head of Alpine Homes,  Savills' Switzerland-based associate.  Coupled with rules forbidding owners from selling within five years, speculative real estate buying is rare. Swiss property prices have shown steady growth of between 2 per cent and 5 per cent annually for the last 15 years, according to Savills. “Unlike in the UK where the prime property bubble meant values collapsed by as much as 30 per cent during the recession, volumes are significantly less in Switzerland and consequently both during the recession and since, prices have been relatively stable,” said Rollason. "That said, we are beginning to see upward pressure on prices again in some of the leading Swiss ski resorts."

Here WealthBriefing reveals the pitfalls of buying property as a foreigner in Switzerland.

Legal restrictions

Swiss property ownership legislation distinguishes between three types of foreign buyers: the non-resident - essentially a tourist, the holder of a "B-Permit", who is authorised to live and work in Switzerland for one year, subject to annual renewal.  Third, the "C-Permit" holder - the equivalent of the US Green Card - which can be applied for after five years residing in the country.

For non-permitted buyers, privileges are few, said Gruhn. “Only one property measuring a maximum space of 250 metres squared, is allowed per family.” A family is strictly defined as no more than a husband, wife, and children under the age of 20. “We advise buyers to seek a permit. Non-permit holders may only stay in their property for a maximum of 180 days, and not more than three months at a time.” Certain cantons are closed to non-Swiss, even with a permit.“It is impossible to buy as a non resident in Geneva and Zurich owing to cantonal legislation. Due to high demand in those cantons where non residents are allowed to buy property, waiting times can extend to two years.” said Rollason.

Mortgages and fees

Swiss mortgages are the most competitive in Europe, said Rollason. Currently the three-month Swiss franc LIBOR interest rate stands at 0.005 per cent - the lowest of all the developed countries.“You can obtain a 70 per cent mortgage paying less than 2 per cent interest fixed for three years from most Swiss banks,” he said. Swiss banks like UBS, Credit Suisse and cantonal lenders will grant loans of around two-thirds of the sale price, including the parking space which can often be expensive. The average cost for the legal procedure including notary fees, land register and permit applications varies between cantons but is usually between 2.5 per cent and 5 per cent.  “If you are buying an apartment expect co-ownership charges and local taxes of around 0.5 per cent of the purchase price per annum,” said Rollason.

Documentation

Once you’ve found your property a number of processes must be observed. Your estate agent will put you in touch with a Swiss notary and a local lawyer if needs be, says Andrew Hawkins, head of international property at UK agent Chesterton Humberts. You must sign a declaration sur l’honneur (a document to include your personal information, buying status and legally certifying that you do not own any other property in Switzerland), a contrat de vente (sales contract) or promesse de vente, said Hawkins. 

This is done in front of the notary although most buyers do opt for a power of attorney, he said. At this point the agreed deposit amount is transferred to the notary’s client account. When these documents are signed and funds transferred, the notary will assemble a dossier for the permit application including site and floor plans, all countersigned by the architect. This dossier is sent to the Land Register and a certificate is issued confirming that the dossier is complete and that all the prerequisites for the permit are fulfilled. The permit application process varies from canton to canton so in some cases, the buyer must then wait for the permit, said Hawkins. The buyer legally owns the property once the permit has been received and when their name appears on the land register.

Taxes

Taxes in Switzerland are low – one of its most appealing qualities to wealthy buyers, said Gruhn. There are three main types of tax: income, wealth and property. Income tax is calculated on all earned income, plus a percentage (60 per cent on average) of notional rental income based on the value of a person’s property.

The wealth tax, the oldest tax in Switzerland, depends on each canton but can be up to 1.5 per cent of your net assets. A proportional property tax of around 0.3 per cent to 0.5 per cent of your net worth is levied by all cantons. Most cantons do not charge inheritance tax, so property goes straight to next of kin. While there is no capital gains tax for Swiss residents, for non-Swiss if the property is sold within ten years then there is a capital gains tax which varies on a sliding scale, depending on how long ago the property was purchased. The lump-sum concession - considered one of Switzerland's biggest draws - is available only to non-working foreigners resident in Switzerland. This tax is levied on an individual’s living expenses. However, taxes vary between cantons and communes. “The safest bet is to seek legal advice from tax experts regarding your particular area,” said Gruhn.

Case study

Sixty-seven year-old motorcycle enthusiast Brendan Donegan bought an apartment in Ovronnaz, Valais, in 2007. A serious ski accident forced him to put the three-bedroom apartment back on the market. He says he has found the Lex Friedrich regulations for selling property even more restrictive than buying it.

If a property is sold less than five years after purchase, most cantons rule that it cannot be listed for more than the original sale price, including purchase fees. “When you are buying a holiday home, selling it on is not necessarily your first consideration,” said the British retiree. “But I would advise buyers to clarify resale options, especially those in the aspirational market where they might need to sell quickly. Unlike in the UK, the canton law concerning foreign purchasers is designed to prevent speculation by 'quick-flipping' property.” 

 He also warned on the cost of furnishing and equipping a home locally. “After looking around the shops in Valais, the strong Swiss Franc meant it made more sense to import a lot of stuff from the UK.” But despite the costs and regulations, he said the purchase and financing process was straightforward. Would he buy in Switzerland again? “I loved the skiing and the quality of life was fantastic. We would recommend it without a doubt.”