In recent years, the Swiss economy, as well as the Swiss real estate market, has shown positive momentum due to the positive economic situation of the country. Although the crisis in the American housing market no doubt has its impact, it did not dramatically affect the demand or prices in Switzerland. The main reason for this is the high population growth in Switzerland, which is partly due to the influx of residents from abroad. Indeed, annual population growth has long been a determining factor in the residential property market in Switzerland. It also should be noted that an increasing proportion of immigrants are highly skilled, which contributes to increased demand in the residential real estate.
Residential property in Switzerland
As before, there is a ready market for individual houses, while in terms of apartment buildings, the most popular choices are three and four-room flats and apartments. One-bedroom apartments, on the contrary, are less in demand and are less frequently offered in the new housing market. The number of vacant residential spaces in Switzerland each year is decreasing.
In 2009, the number of new developments in Switzerland decreased somewhat compared to previous years: the growth in the number of new offerings on the residential property market amounted to 42,000 units (apartments in the property, apartments for rent, and detached houses).
In recent years, the largest number of new building permits has been allocated to the economic centers of Switzerland — Zurich and Geneva.
However, construction opportunities in Geneva have been practically exhausted, hence part of the Geneva metropolitan area has long been located in French territory due to the limitations of its land resources.
Other territories with a high number of construction quotas are the country’s developing regions: Bern, Graubunden, Neuchâtel, Fribourg and Valais. The finiteness of land resources in Switzerland has brought about certain adjustments on the real estate development market. Far from all land in the country is suitable for development: mountain and lake areas as well as woodlands are ineffective areas for the development of this industry. According to studies, the territory in Switzerland that is theoretically suitable for occupancy equals about 11,772 km2 , or 28.5% of total land area of the country. This is one of the main factors determining the steady demand for Swiss real estate.
What type of property do you need?
Reasons for purchasing property in Switzerland can vary, and when making a decision, it is best to clearly articulate to yourself your motives and criteria, as they will largely determine what kind of Swiss home you need. Some people buy homes near the Alps for skiing, while others do it because they want their children to be educated in Switzerland, leading to the assumption that as adults, the children will choose Switzerland as their place of residence. Others are seeking a place for the annual family vacation, for entertaining friends or for providing their parents with a peaceful and happy retirement home. Still others simply want to be in the center of action in Europe.
About two-thirds of all vacation property sales fall within in the cantons of Vaud and Valais. The region of Lake Geneva holds the leading position in terms of demand for residential property among foreign buyers. Typically the demand is centered on Geneva or Lausanne, but because of restrictions on the purchase of real estate, buying an apartment with a view of the lake is possible only in the cities of Vevey, Montreux and Villeneuve.
Real estate around Lake Geneva can be purchased in the lakeside region of Montreux-Vevey, which belongs to the canton of Vaud, and in the canton of Valais, which includes the municipalities of Villeneuve and Saint-Gingolph.
The purchase of real estate by foreigners in Switzerland is strictly regulated by the law regulating foreign ownership of Swiss property (Bundesgesetz vom 16. Dezember 1983 uber den Erwerb von Grundstucken durch Personen im Ausland (BewG)), which also regulates the acquisition of real estate by foreigners. This law is also called Lex Koller, while before it was called Lex Friedrich in honor of the people who have made amendments to the law.
According to this law, “foreign aliens” are considered citizens of the European Community (EC) or European Free Trade Association (EFTA), as well as citizens of other foreign states whose permanent residence is outside of Switzerland and who do not have permission to stay in Switzerland . Simply put, this law applies to all non-residents of Switzerland. The purpose of this law is to limit the acquisition of Swiss land by non-residents.
The Lex Koller law applies to:
a) property acquisition, construction permits, rights of residence or rights to derive profit from the use of the land;
b) investment in a company whose purpose is the acquisition of land;
c) the acquisition of property or rights to derive profit from the use of land in the form of equity participation in a real estate fund, the shares (stocks) of which are not regularly traded on the market;
d) the acquisition of property or rights to derive profit from the use of land through equity participation in a company whose goal is to acquire land, if the shares (stocks) of the company are not listed on the Swiss stock exchange;
e) the sale and repurchase (for the purpose of sale), or land acquisition or equity participation in the cases mentioned in paragraphs b, c and e;
f) the acquisition of other rights that put the buyer in the position of the landowner.
According to the Lex Koller law, any non-resident in Switzerland must obtain permission to acquire land in Switzerland.
These restrictions do not apply to commercial property, which can be purchased freely. It is important to note that commercial property comprises office space, warehouses, commercial and industrial premises, hotels or apartment hotels.
As for income-generating homes and the construction of residential properties, there are no restrictions as long as foreigners are minority shareholders, with their stake in the project not exceeding one third — 30–40%. The controlling stake must belong to residents.
Every year in Switzerland, around 1,500 permits (quotas) are allocated to foreigners, spread among those cantons that are particularly in need of tourism development and economic growth. Already for several years, the highest number of permits for the purchase of real estate by non-residents has been awarded by the cantons of Valais, Vaud, Grisons, Ticino and Bern.
The Lex Koller law also makes a distinction in types of residential property. There are three main categories of real estate: property owned by those who reside in Switzerland full-time, property owned by those who are connected with Switzerland for business reasons, and vacation property for leisure and recreation.
Non-residents have the right to obtain vacation properties in Switzerland.
Cantons where foreigners are permitted to purchase vacation properties: French-speaking Switzerland — Valais, Vaud, Fribourg, Neuchâtel, Jura; German-speaking Switzerland — Bern, Schwyz, Graubunden, St. Gallen, Schaffhausen, Appenzell Ausserrhoden, Uri, Nidwalden, Obwalden, Glarus; Italian-speaking Switzerland — Ticino.
Cantons in which there is no quota for foreigners to purchase vacation properties: French-speaking Switzerland — Geneva, part of the Canton of Vaud, including Lausanne; German-speaking Switzerland — Zurich, Zug, Lucerne, Aargau, Appenzell Innerrhoden, Basel-Stadt, Basel-Landschaft, Solothurn, Thurgau.
The Lex Koller law introduces the following restrictions for non-residents in acquiring land and, accordingly, vacation properties:
1) non-residents can only buy one property for personal use per family (“family” means spouses and their minor children under the age of 18 years); it is possible to purchase a second property by issuing it to, for example, a sister, brother or parents;
2) the floor areas of residential properties shall not exceed 200 m2, while the plot of land cannot exceed 1,000 m2; in practice, exceptions can be obtained by negotiating with authorities during the project phase or when, say, an extra room is needed for a family with many children;
3) non-resident foreigners are not allowed to sell their residential property for at least five years. If an owner of residential property develops health problems or gets into a difficult financial situation, this restriction can be waived, but only if there is evidence that the circumstances arose after the real estate was acquired. In practice, obtaining authorization for the sale of real estate before the required expiration of time is not so difficult, but the owner must prove that the property has been acquired for personal use and not for resale.
In addition, all prospective buyers must confirm that neither they nor their family members (spouse and children under 18 years) have other private property in Switzerland to date. These rules are written and recorded at the Land Registry.
The main purpose of buying residential property must be for personal use, rather than for renting.
However, the so-called personal use may last only three weeks each year. The rest of the time — up to 11 months of the year — nonresident property owners can rent out their property. The authorities assume that when property is acquired for vacation and recreation purposes, it is bound to be rented out, and they therefore levy taxes on potential income. We will return for more discussion on this topic later.
As for the acquisition of non-residential land for construction, there are several options:
1) non-residents may acquire land only through a project that has received permission (quota) for a foreign buyer;
2) if you are a full-time resident of Switzerland, you can purchase land for construction of residential property for personal use without restrictions on the size and location;
3) you can buy a plot for a company where your contribution is no more than 30–40%, while the rest belongs to local residents;
4) if you have EU citizenship and are a resident of Switzerland, you can acquire land and build without any restrictions.
In some cases, it is permissible to purchase a land plot with a prepared construction project, approved by a local architect.
The purpose of introducing all of these restrictions is to prevent real estate speculation. Switzerland is a small country, and those looking to buy real estate are many.
Legend has it that in the 1980s, immigrants from the Middle East began buying land in Switzerland, particularly in the area of Lake Geneva. Prices rose sharply, and the Swiss were forced to impose restrictions. Then there was the “second wave” of buyers from the former Soviet Union, and today there are increasingly active investors from Southeast Asia. Therefore, the restrictions are still valid, and thanks to them, there are no market bubbles or speculation affecting the supply and demand on the Swiss real estate market.
It is important to note that the purchase of real estate does not automatically entitle you to a permanent residence permit, but only a category C Schengen tourist visa, which grants you a 90-day stay over the course of six months.
In Switzerland, there is no immigration policy in the form in which it exists, for example, in the UK, Canada, Australia or New Zealand. a foreign citizen who has bought property may be located in Switzerland on a tourist visa. Documents from the purchase transaction may serve as the basis for its receipt and an invitation to friends and acquaintances.
The Lex Koller law also sets forth that if a foreign person owns a controlling stake of a company’s shares (typically more than a third directly or through nominee shareholders, which are actually controlled by foreign beneficiaries), then the company is controlled and operated by a foreign person, and the purchase of property in the company’s name is in fact equal to the purchase of real estate by a foreigner. If the foreign person is not a controlling shareholder and everything else belongs to Swiss legal entities or individuals, then one can freely engage in real estate investments on behalf of the company.
It is important to understand that legislator has clearly outlined situations when foreign investors may seek to acquire real estate through front companies or corporate entities. This is why the law applies the concept of de facto tenure.
Buying residential property through a front person or company is also strictly forbidden by Swiss law. The consequences in these instances can be very grave, going as far as criminal liability.
What is the story behind and purpose of the Lex Koller law?
The first law restricting the sale of real estate to foreigners appeared in 1961 and was known as the Von Moos law, named after the federal statesman who initiated it. The purpose of this legislative initiative was the preservation of “Switzerland for the Swiss”. According to the Von Moos, the basis for determining whether someone was a “friend or foe” is their actual place of residence. Initially, even the Swiss living abroad were subject to the restrictions imposed by law, while foreigners who settled in Switzerland felt completely free.
In 1979, significant amendments were made to the legislation, establishing quotas that drastically reduced the number of permits for sale of vacation properties to foreigners.
On January 1, 1985, the Lex Friedrich law came into force (in 1997, Lex Friedrich became Lex Koller), bringing about two significant changes:
1) from that time forward, foreign investors had the right to freely acquire commercial real estate in order to revive the Swiss economy. Such acquisitions also significantly facilitates obtaining residence permits;
2) in accordance with the ALCP (Agreement between Switzerland and the EU on the free movement of citizens), any EU citizen can freely buy Swiss real estate, provided that he resides in Switzerland.
The concept of “foreigner”
Not all foreigners are subject to the Lex Koller law, as the statute does not apply to foreigners from the EU or EFTA countries who reside in Switzerland (residence permit type B), as well as foreigners, regardless of origin, who have a Swiss residence permit type C. And the law certainly does not apply to Swiss nationals living abroad.
The concept of “place of residence”
In practice, the concept of “place of residence” raises some questions. Under the Swiss Civil Code, a home or place of residence is the place where a person resides with the intention of settling here continually and permanently. This intention means that the person is fully involved in maintaining the residence in good condition, so that the residence becomes the center of his personal and professional interests. This is what in Switzerland is called the “center of life”. The property buyer must prove by example that he lives in Switzerland in one house, that his wife and children live with him and that he complies with all tax obligations to the Swiss state. Evidence that the foreign national is a full-time resident in Switzerland includes: the existence of an employment contract, vehicle registration, etc.
The judicial authorities vigilantly monitor for compliance with the law, as the temptation to create a “dummy home” in Switzerland by buying property without fulfilling the requirement for permanent residence is very high.
What happens when a property owner leaves Switzerland?
If a property owner suddenly leaves Switzerland before establishing permanent residence in Switzerland (category B permit for Europeans or permit category C), his property will not be confiscated or put up for sale, despite the owner’s clear violation of the law.
The acquisition of real estate by a corporate entity
It is also important to note that EU residents residing in Switzerland and holding a category B residence permit, or non-EU residents holding category C permits, have the option of establishing a real estate agency. The agency should be headquartered in Switzerland, and its founder must be the sole shareholder as well as the sole owner of the business.
Having headquarters located in Switzerland is very important, as any agency with headquarters abroad, even if it belongs to those who are not foreigners, is subject to the Lex Koller law.
If the company is headquartered in Switzerland, it is necessary to make the following distinctions:
1) Property management companies that can acquire real estate (Société immobilière objet de l’acquisition).
Foreigners cannot buy even one share of a stake in a property management company (Société immobilière). The goal of property management companies is to acquire real estate, which is limited by the Lex Koller law. However, since April 1, 2005, if the shares of the property management company are listed on the stock exchange, a foreign person can freely acquire them without any special permission.
If the company is not considered a property management company, foreign individuals can freely purchase its shares.
2) Property management companies that cannot acquire real estate.
Property management companies owned by foreigners living abroad cannot acquire property in Switzerland. The company should be entirely in the hands of persons who are permitted by law to acquire Swiss property.
Commercial companies that are not property management companies may acquire real estate, except in cases of so-called shell companies that serve a front for the purchase of real estate by foreigners.
Which types of buildings can be purchased freely?
Permission to purchase is not required and you can freely buy a building if: the buildings are exclusively commercial (not including buildings under construction, apartment buildings and any other residential property, not counting hotels); if the building serves as a primary residence (principal residence) for an individual who has moved in and stays in it for legitimate reasons.
Living in a vacation home
Buying a vacation home can be done in places where such sales are permitted and desirable for tourism development. Such is the case in the canton of Vaud, which includes Villars-sur-Ollon, Les Diablerets, Leysin, Montreux, and in the canton of Valais, which includes Verbier and Crans-Montana. On the other hand, Geneva, for example, is not a place where you can purchase a vacation home.
The area of real estate acquired by a foreigner (in an apartment or house) must not exceed 200 m2. If the property is a house or cottage, the plot of land adjacent to the house should not exceed 1,000 m2 (exceptions are made if the land is situated on a slope or is indivisible).
Only individuals can purchase vacation property. A foreigner, his spouse or children under the age of 18 can acquire only one property for all.
Undoubtedly, the most difficult party is obtaining the quota. The Federal Council allocates 1,500 units of the total quota for foreigners living in Switzerland as a whole. The canton of Vaud received 175 units in 2010, while the canton of Valais received 310 units. In 2008, the quota allocated to either canton was not sufficient. In order to cope with the shortage of quotas and legal uncertainty, some villages in the canton of Valais, such as Verbier, temporarily banned all sales of vacation homes to foreigners.
Vacation properties cannot be leased for the whole year, but can be rented for short-terms stays. The owner must use his own housing.
Three steps. The procedure for acquiring real estate
The process for buying real estate in Switzerland is typically as follows
Step 1. Selecting a property and reserving it
After a property is selected, it is necessary to reserve it. The fact of the matter is that preparing all components of the transaction — valuation, financial, legal, etc. — can take from several weeks to several months. It is therefore important to settle the agreement with the seller prior to signing the main contract. Usually we are talking about a certain fixed amount for down payment (5, 10, 15, 20, 30% or CHF 5,000–200,000), which is transferred to the account of a notary or real estate agency as collateral.
It is worth noting that the reservation procedure is in fact not legally binding. As long the parties have not yet signed a contract or an agreement of intent, they can at any time abandon the deal and demand the security deposit be returned.
A public notary or agency must refund the amount minus the cost of any work that was done. Usually there are no penalty sanctions in this instance.
As such, the reservation process is more of a psychological test used to reassure the seller that the buyer’s intentions are serious.
In order to make the agreement binding, you must sign a contract or an agreement of intent that establishes in writing the conditions of the forthcoming transaction, including the terms and penalties. Typically, such a contract or agreement also includes provisions for a downpayment of 5–10%, which is transferred to the trust account of the notary officer, real estate agency or seller. Technically, however, the most correct approach is to transfer the deposit to the trust account of a notary, primarily because of his / her official status and complete neutrality.
It is important to note that very often, the contract or agreement of intent is confused with the main sales contract, which has extended terms regarding the down payment or postponement of payment and transfer of ownership.
Step 2. Signing the sales contract
Real estate transactions in Switzerland need to be notarized. The public notary is responsible to the state and held accountable for the “purity” of the transaction, and after is also responsible for updating the country’s Land Registry. The contract must be signed by the seller and the buyer or their representatives. Do potential buyers have to be personally present at the signing of the contract? No, not necessarily, however, the buyers must send a trustee who can sign the contract on their behalf.
Drawing up the contract usually takes from 3–4 days to 2–3 weeks depending on the complexity of the transaction and the readiness of all documents. Because the notary officer is fully responsible for the transaction, he / she should check all the information about the property being acquired, including the basis of ownership / land use, in order to request a termination of registration from the Land Registry, the existing encumbrances and easements. All this takes time, so work on preparing the documentation should begin as soon as possible. However, when it comes to large construction projects, where the notary is already familiar with the property and has all the documentation, processing the paperwork may take only 1–2 days or, in some cases, a few hours.
The contract must contain information about the parties involved. Interestingly, if the property has been acquired by a foreign citizen, then the Swiss authorities will need information about his / her date of birth, place of residence, as well as the names and birth dates of his / her parents.
The following is a detailed description of the property and its value.
It is worth noting that in Switzerland, when acquiring a property during the construction phase, the risk that the buyer runs is no greater than the risk of buying a finished house. A valid building permit, the presence of a general contractor, insurance — all this are sufficient guarantees that the buyer will receive the finished property by the deadline. Interestingly, if a Swiss bank is underwriting the financing, then the bank will be responsible for completing the construction if there are any problems with the developer.
The most important part of the contract is the payment procedure. The sale contract may call for a downpayment of 5–10% as well as stipulate a refund in case the transaction is cancelled. It may also stipulate penalties: if the buyer backs out of the deal, then all or part of the downpayment could remain with the seller.
When it comes to new construction, payment may be done in phases. Usually in Switzerland, 10% is paid in advance, 30% at the time of the contract’s signing, another 30% once, so to say, the roof is on, and the remaining 30% when the buyer is handed the keys to the apartment. However, small deviations from this order of payment are possible.
All this makes it possible to receive additional payment installments when purchasing an apartment in a building under construction.
If the buyer has resorted to bank lending / mortgaging, the payment procedure is usually as follows: the buyer provides an initial payment of 20–50% to the bank account, and the rest is issued by the bank in the form of a mortgage loan. If the property is under construction, then the developer issues an invoice for the next stage either to the buyer, which forwards it to the bank, or directly to the bank that is making the payment.
The situation often arises in Switzerland where, during a property sales transaction, the seller asks for confirmation that the buyer already has the entire amount.
In the case of bank lending, the bank provides a so-called letter of guarantee, usually in the name of the notary, which confirms the financial provision for the full amount. The bank can provide such a guarantee only after making the loan agreement. Credit arrangements usually take 2–3 weeks, but it’s better to have more time to spare.
It is important to understand that a bank guarantee in itself does not involve extra costs for the customer — bank interest rates for credit use do not accrue from the date of the issuance of guarantee, but rather from the moment the bank actually pays the building owner.
If the buyer pays for the purchase from his / her own funds without taking bank loans, then the funds are transferred either to the notary that is overseeing the settlement between the parties or to the seller. It is important to know that Switzerland allows payments on behalf of third parties. An advance payment may come from abroad as well as from third parties, such as a company. The payment’s reference document must also indicate to whom or on account of which deal the payment is being allocated, and that the notary officer or the seller did not raise doubts about the legality of the origin of funds. The remaining sum is usually already transferred from a bank account in Switzerland, although there are exceptions.
What else to look for when signing a contract: the presence of a garage and parking spaces, basement, additional accommodations, laundry and garden plots for use if the apartment is located on the first floor; maintenance guarantees and who provides them — the building owner or the construction company.
Even if you did not have the opportunity to carefully review the contract, you do not have to worry, as the notary overseeing the signing is obliged to go over the full text with you and give thorough explanations and answers to all questions. In some cases, this procedure may take several hours. The process is also carried out in one of the country’s official languages, so an interpreter is required to be present if foreign buyer does not speak any of the local languages.
When signing a sales contract, the buyer must sign a declaration in accordance with the Lex Koller law, while the notary officer must certify the buyer’s declaration that he / she has no other real estate in Switzerland (non-residents may hold only one property per family). The notary officer should also warn the buyer that he has no right to resell the property within the next five years.
Step 3. Entering into ownership
After signing the sales contract, the buyer receives a copy of the contract, and the originals are sent to the notary for entry in the Land Registry. Since, in accordance with the Lex Koller law, foreign buyers are required to obtain a permit under the quota system, then the notary officer first submits the application for the allocation of a quota / permit for the purchase.
This process usually takes 1.5–2 months, and in some cases may be delayed for 3–4 months or even until the following year if all the quotas for the year in a given region have been used up.
Until a permit is secured, the contract cannot be entered into the Land Registry, and the buyer cannot take ownership. While an agreement for an apartment’s use during this period can be reached privately, the buyer has legal ownership only after permission is granted and the contract is entered into the Land Registry.
If a property is sold already “with the quota”, i. e. a permit was already obtained by the previous owner, then a new quota is not required. Indeed, the quota is allocated to property, not the buyer. If the owner of a property “with a quota” decides to sell the property, the quota remains with it. The new owner simply needs to re-register at the Land Registry and thereby immediately comes into ownership of the property.
Of course, the quota does not apply to residents of Switzerland.
After receiving the quota, or if the quota is not required, the notary sends the client a bill reflecting taxes on the transfer of ownership, fees for changes to the Land Registry, as well as a commission for the notarial services. After the taxes, fees and invoices are paid, the sales contract is recorded at the Land Registry, amendments to the registry are made, and from that point on the buyer is the full owner. The original contract is stamped with the seal of the Land Registry and the documents are sent to the public notary, who is to hand over the original, certified contract to the purchaser. The buyer can also go to the Land Registry to request an extract from the property ownership register. The extract may be needed, for example, to process an entry visa or register a car in Switzerland.
Please note that the entire process of purchasing real estate can take 3–4 months and sometimes longer.
It is important to know that the Land Registry in Switzerland is public and anyone who wants can get information about who is the owner of a property. However, the services of local and foreign companies or trusts are often used for purchasing real estate. This is done to keep the name of the current owner a secret from the general public.