Switzerland: Overview
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Switzerland is not open to buy-to-let investment
Swiss house prices have been an exception within Europe, resisting the dramatic price rises seen elsewhere.
Property prices are rising gently, as they have been since 2000. Prices for apartments built for renting rose 3.2% y-o-y in 2006, after a 3.7% rise in 2005. Prices of condominiums (i.e. apartments built for owner-occupancy) and single family homes rose by 1.9% and 1.8%, respectively.
The Swiss have for a long time restricted the sale of property to foreigners. Now the Federal government has set an annual quota of permits for non-resident foreigners seeking to acquire property in Switzerland. In addition, cantonal authorisation is needed before gaining title. Each canton has slightly different rules and the rules even vary from commune to commune within the canton. Generally speaking, foreigners have the largest choice of properties in French-speaking Switzerland. The most liberal canton is Vaud which includes mountain resorts such as Villars where foreigners can buy virtually any property and resell immediately.
However by 2010 each canton will have the responsibility for its own foreign property acquisition laws, which will result in an immediate transfer of property titles as opposed to the current delays. This is expected to increase demand from foreign buyers.
In addition to these difficulties, buy-to-let investors must also face multiple income taxes that can easily exceed 50% of total income. Tenancy laws are also pro-tenant.
RENTAL YIELDS
Yields are generally low in Switzerland
Swiss gross rental yields are around 3.8% to 5%, with smaller units (around 40 sq. m.) earning higher rental yields, according to Global Property Guide estimates. In Geneva, home to various international organizations, city centre apartments have gross yields of 4.1% - 4.9%. In Zurich, Switzerland’s biggest city and the financial capital, apartments have gross yields of 3.8% – 5.1%.
About 57% of rental dwellings belong to private individuals, usually self-employed. Another 22% are owned by companies.
TAXES AND COSTS
Swiss rental income tax is very high
Effective Tax Rate on Rental Income |
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| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 48.6% | 53.2% | 54.5% |
| Click here to see a worked example | |||
Source:
Disclaimer |
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Rental Income: Income is taxed at the federal, cantonal and municipal levels. The total tax liability could easily exceed 50%. Federal tax rates range from 0% to 11.5%.
Capital Gains: Capital gains are tax-free at the federal level (unless the gains are from the sale of business property). All cantons, however, levy their own taxes on gains from the disposal of immovable property located in the canton.
Inheritance: Inheritance tax is levied at the cantonal level, on the net assets transferred to the beneficiaries.
Residents: Residents are liable to pay federal, cantonal and municipal income taxes on their worldwide income.
BUYING GUIDE
Total transaction costs are low in Switzerland
Closing costs are relatively low in Switzerland. Roundtrip transaction costs, i.e., the total cost of buying and selling a property, range from 3.5% to 9%. The estate agent’s fee comprises a large chunk of the cost at roughly 3% - 5% (plus 7.6% VAT), usually paid by the seller.
The buyer pays the Real Estate Transfer Tax which ranges from 0.2% to 3.3%, depending upon the canton. Since January 2005, Transfer Tax has been abolished in Zurich.
LANDLORD AND TENANT
Swiss law is pro-tenant
Around 61% of all households are renters; so it is not surprising that the law in Switzerland is pro-tenant.
Rents: he initial rent can be freely agreed between the landlord and tenant. However, within 30 days the tenant can appeal against the rent as abusive.
Tenant Security: Tenancies tend to revert to indefinite duration tenancies. This is not necessarily a disaster for the landlord, because three months termination notice can be given by either side.
But the court may give the tenant an extension of up to four years, in cases where and eviction would cause hardship.
ECONOMIC GROWTH
Strong economic growth expected to continue
Land-locked at the heart of central Europe with a population of 7.5 million, Switzerland is a small, majestic, scenic country with one of the richest economies in the world (GDP/capita US$52,484).
Despite being surrounded by the founding members of the European Economic Community (now the EU), Swiss voters have repeatedly rejected the idea of EU membership.
Swiss GDP growth had been anemic from 2001 to 2003, but has now recovered. GDP growth in 2006 was 2.7%, following 2.3% growth in 2004 and 1.9% in 2005. Economic growth to be a little over 2% in 2007.
The labour market is already showing signs of improvement and all major markets have posted favorable sales trend. Unemployment is less than half the EU average, around 3.8% in 2006, down from 4.3% in 2005.
Inflation is low at 1.1% in 2006, in line with the average inflation of 1.0% from 2000 to 2005. It is expected to ease down to 0.2% in 2007.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Bubble fears prompt foreign ownership limits in China
America & Caribbean
The slowdown of the U.S. housing market
Middle East and Africa
Bahrain is open to foreigners and sizzling hot
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): €5,534 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.80% For a 120 sq. m. property, usually an apartment. |
| Rent/month: €2,656 For a 120 sq. m. property. | Income Tax: 48.56% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
5.7%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 27.2% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice. | |
MAY 2008
- UBS slashes jobs in US subprime wake - Swiss Info
APRIL 2008
- Geneva city rental agency rapped for negligence - Swisster
- Lausanne property show attracts highly prized foreign residents - Swisster
- Swiss real estate market in relatively good shape - The Fin Channel
JANUARY 2008
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