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How Switzerland’s stable reputation helped its prime property market weather the pandemic storm

23 February 2021

8 minute read

Strong currency. Stable economy. Reliable politics. Switzerland has long been a magnet for wealthy investors. And, in a time in which the COVID-19 pandemic threw markets and daily life into uncertainty, this land of clean lakes, majestic mountains, international schools and world-class quality of life appears to be holding its appeal when it comes to property.

Knight Frank is predicting 3% growth for Geneva across 2021 and Q3 2020 data suggests prime sales remained resilient to pre-pandemic levels1.

In fact, Alex Koch de Gooreynd, Swiss Property Partner for Knight Frank, reports an increase in residential transaction levels. “It’s just staggering the number of ‘top top-end’ deals we’ve seen, and also the sheer volume at the lower end of the luxury market. That’s not even taking into account the mainstream market, which has seen similarly robust sales,” he says.

Occasionally, buyers must navigate complex rules on Swiss property purchases. However, these have created a sense of exclusivity and desirability, fuelling Switzerland’s appeal.

Add the lifestyle and working-pattern changes brought about by the pandemic, says Koch de Gooreynd, and that appeal may be greater still.

He recalls that when he started working with clients looking to buy in Switzerland in 2008, most of them were motivated by the country’s lump-sum taxation. Over the years – and particularly because of the pandemic – those priorities have shifted. Now, Koch de Gooreynd says, “around 90% of my clients are coming to Switzerland for the safety, security, health care, and education. The taxes are a factor, of course, but they are now seen as more of a by-product than a primary driver.”

Syed Raza, Managing Director, Global Banking and Credit Solutions Group at Barclays Private Bank, says: “Switzerland’s position at the centre of Europe – but not in the eurozone – combined with the incredible quality of life, make it one of the best places in the world to own a home. For many buyers, the additional hurdles involved in buying a property are certainly worthwhile.”

Prime property prices: historically strong

For years, Swiss house prices only went in one direction – up. But that changed in the previous decade, which saw values stagnate.

The reason? Lex Koller regulations restrict how and where non-Swiss residents can buy property. Lex Weber also limits the number of secondary homes in any given location to 20%.

Adding to this, the Swiss National Bank announced that it would no longer hold the Swiss franc on a fixed exchange rate with the euro in 2015. International demand decreased as Swiss property became more expensive for non-resident buyers. Similarly, a higher number of international buyers sold their properties to profit from the Swiss franc’s higher relative value, creating increased housing supply.

“The Swiss franc de-pegging against the euro, combined with changes in regulations, certainly sparked concern in the market at the time,” says Koch de Gooreynd. “But now prices are recovering well, supported by a range of factors – from negative interest rates to people starting to see higher-value currency as a positive during the pandemic. The strong currency is part of what makes Switzerland a safe haven.

Stuart Butler, Head of Credit Solutions, Barclays Bank (Suisse) SA, says: “The Swiss franc remains a go-to safe haven currency and, despite its strength, a number of buyers cite a desire to hold an asset in a non-US dollar and non-euro denomination as a key motivation behind their purchase.”

The return of international buyers?

Prices have been rising in Switzerland’s main cities, although buying a home there is out of reach to foreign buyers due to the country’s property ownership rules. But Koch de Gooreynd remains optimistic that with more freedom to travel as the COVID-19 vaccine is made available, international clients will come back with interest to the marketplace, perhaps with the intention of becoming permanent residents.

Prices may be further boosted in the coming years by changes in corporate tax rules that could encourage businesses to relocate to Geneva, according to Knight Frank, although most city workers rent rather than buy. At the start of 2020, corporation tax for many companies in the city was cut from 24.2% to 13.99% year-on-year.

Geneva is one of the safest places in the world, According to a ranking by Mercer. With more than 130 global company headquarters based in the city, the presence of the UN and top-notch schools, Geneva attracts diplomats and executives with families.

Resort pricing avoids steep slopes

In Q2 2020, prime property prices in the majority of Switzerland’s most expensive ski resorts saw positive or neutral year-on-year price growth2. When looking at four-bedroom chalets, Verbier showed the strongest price growth of 2.9%, followed by Grimentz (+2.3%), Klosters (+1.9%), Davos (+0.6%), Champrey (+0.5%), Gstaad (0.0%) and Zermatt (0.0%). However, the resorts of St Moritz (-1.9%) and Crans Montana (-2.0%) showed modest declines2.

While it’s too early to get a clear picture of how COVID-19 has impacted the prime ski market, initial evidence paints a picture of relative resilience. For example, the average asking price for Verbier properties over €750,000 was €19,500 per square metre in October 20203 - a 3% drop year-on-year.

With many people re-evaluating their lifestyle and working arrangements, ski resorts are the ideal location for buyers who value the clean air, access to nature and open spaces offered by these locations. The pandemic has accelerated the trend towards working from home, enabling owners to make longer trips or even permanently re-locate to their Alpine retreats. Other longer-term fundamentals such as tight supply, increasing numbers of visitors to ski resorts, access to excellent private schools and the appeal of year-round facilities are likely to support both demand and prices in Switzerland’s prime ski resorts.

Infrastructure for the future

Swiss ski resorts recovered from the stagnation caused by Lex Weber by spending large amounts on infrastructure. The local government in Verbier, for example, invested CHF 27m to improve public transport. Despite the pandemic, this investment in infrastructure shows no signs of slowing with 73 new ski lifts opening in the alps in 2020/21, increasing the regions capacity by 0.9%3.

“New ski lifts and improved infrastructure, along with factors such as lack of supply on the market and improved dual seasonality, are major drivers of property values in prime resorts,” says Sophie Chick, Head of World Research at Savills3.

Butler says: “Following a period of stabilisation, 2020 data shows that prices are now on the rise again across Switzerland. From the exclusive ski resorts of the Valais or houses nestled on the shore of Lake Geneva, British buyers once dominated the super-prime market, accounting for the vast majority of foreign buyers in many Swiss resorts. However, in the past few years, a much wider variety of buyers have been present. These include a range of buyers, particularly those from northern Europe, the Nordics and the Middle East.”

Swiss property rules explained

Here’s a quick summary of the key points of the two most important sets of rules and regulations affecting Swiss property buyers, known as Lex Koller and Lex Weber. Remember to seek independent financial advice and tax advice to understand how you could be affected by these rules.

What is Lex Koller?

This legislation came into effect in 1983 and restricts the size and location of property available to non-Swiss residents.

Alex Koch de Gooreynd, Swiss Property Partner for Knight Frank, explains: “Say you want to buy an apartment in Geneva as a pied-à-terre. Unless you already live in Switzerland or take residency, it’s not possible. There’s no way around it.”

Specifically, you are not allowed to set up a Swiss company and buy it in the company name. The purchase of residential real estate is only permitted by holders of Swiss passports or Swiss residency permits.

Are there any exceptions?

Yes, primarily in designated holiday zones. These are mainly in the ski resorts, but also around Lake Geneva and in the canton of Ticino, near the Italian border.

These zones allow non-Swiss residents to purchase one single property with a maximum living space of 200 square metres and a maximum land parcel of 1,000 square metres, per named individual.

It’s potentially possible for families to purchase larger properties that are subdivided among family members who are individual owners, although married couples are treated as one individual under the rules.

Which ski resorts are in a holiday zone?

“Every ski resort is a holiday zone,” says Koch de Gooreynd. “But crucially it’s the resort, not the whole area. A good example is Verbier, which is considered a holiday zone. But if you go to the bottom of the valley to Le Châble, it’s for residents only.

Cantons where foreigners can buy in ski resorts include Vaud, Bern, Valais, Obwalden, Uri and Grabünden.

Where else can foreigners buy?

Outside the ski resorts, non-residents can also look at holiday zones like Montreux, at the eastern edge of Lake Geneva, where some of the country’s best independent schools are.

What is Lex Weber?

Lex Weber regulations cap the number of second homes or holiday homes in any given location at 20%, regardless of whether you’re a Swiss resident or a foreign investor.

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