Are you considering breaking out of the rental cycle and buying your own little piece of Switzerland? Most people feel the need or at least the desire to own their own home at some point in their life. If done right, buying property can also be a good long-term investment.
But buying into the wrong property can turn into a complete nightmare, and before you even look at properties for sale, there are a few topics which you should try to become familiar with.
Here, moneyland.ch explains 10 things you should consider before buying a home.
Most people assume that owning is cheaper than renting. While this can be true, especially if you have the money to pay for a property in cash, there are a number of factors you should consider.
First and foremost, if you plan to mortgage a home, you need to make sure that you meet the financial requirements.
Aside from the mortgage, owning a property in Switzerland comes with numerous administrative and maintenance costs which we explain in more detail below. If you cannot easily afford to cover these costs, you may find owning your own home to be more of a shackle than a stepping stone.
2. Freehold or leasehold?
If you have come across the terms “ground rent” or “land interest” (German: Baurechtzins, French: rente du droit de superficie) in the course of your home-purchase musings, you may have asked yourself what in the world a “ground rent” is.
To put it simply, a ground rent is a lease payment towards the use of land which belongs to someone else. This setup is known as a leasehold, and leaseholds are fairly common in Switzerland because building land is in short supply. The lessee has the right to construct buildings on the property (albeit with certain limitations) and can then sell the buildings, along with the leasehold agreement, to a willing buyer.
Leasehold agreements last anywhere from 30 to 100 years, after which the landowner has the right to either extend the land lease, or take back the property (in this case they must reimburse part of the value of your house). When you buy a leasehold home, you are only buying the building and not the land it is built on.
After taking over a leasehold, you become responsible to make the lease payments, and ground rent is subject to change as the value of land increases. In some parts of Switzerland, ground rents can easily cost 1000 to 2000 francs per month, depending on the size of the property. Because leasehold arrangements are complicated, expensive, binding and risky, it can be very difficult to resell a leasehold if for any reason you choose to move or can no longer afford the ground rent.
A freehold home (which you fully own) is more expensive, but in nearly every case it is a much safer choice. Always inquire into whether a home is a freehold or a leasehold (consult a property lawyer if necessary) and do not let yourself get duped into buying a leasehold thinking you are buying a full-title property.
3. Long-term investment potential
Despite having a somewhat slow and steady real estate market thanks to strict regulation, Swiss property has consistently performed well as a long-term investment. However, the potential for long term value increases is almost entirely dictated by the property’s location. Properties in reasonable proximity to major business hubs or popular resort areas are a good bet. Even rural areas may experience major increases if they are within commuting distance of major agglomerations.
For example, the relatively remote municipality of Turbenthal in the canton of Zurich saw median per-square-meter prices climb from 65 francs in 1974 to 584 francs in 2016. Property in Hausen am Albis, a rural municipality south of Zurich, sold for an average of 72 francs per square meter in 1974 and 1010 francs per square meter in 2016, thanks to its relative proximity to both Zurich and Zug. Similar value increases hold true in the areas surrounding Geneva, Basel, Luzern, Lausanne, and many other cities.
However there are other areas, such as remote agricultural areas and former industrial regions, which are currently facing post-industrial unemployment and emigration. In these areas, property values have increased only moderately, or even stagnated.
Choosing a home in the right location could make the difference between a long-term investment and a long-term liability.
4. Property tax
Location is also the key factor in determining how much you pay in property taxes. In Switzerland, property taxes are levied at municipal and cantonal levels. That means you could pay a hefty tax for a property in one town, when homeowners in the next town may not pay land tax at all.
Cantons which do not levy a cantonal land tax are Schwyz, Aargau, Glarus, Solothurn, Basel-Landschaft Zurich and Zug. In those that do, you will pay anywhere from 0.5% to 2% of the property’s official value every year. If you were to buy an 800,000-franc home in a canton which charges a 2% property tax, you would have to spend 16,000 francs per year on land tax alone. That would add up to 160,000 francs over just 10 years, which once again shows that location really is everything.
5. Maintenance costs
No matter where in the world you live, buildings require proper maintenance in order to remain safe and attractive, and to keep their value. But there are certain maintenance costs which you may not immediately take into account.
Because all parts of Switzerland are affected by freezing temperatures in winter, damage caused by freezing is inevitable – though some materials and designs are more strongly affected than others. Freezing temperatures also mean that you will normally have a central heating system to maintain. While Swiss contractors generally deliver high-quality workmanship and materials, their charges are also high.
As a general rule, you will want to set aside at least 0.3% of the property’s value every year to cover future renovations. So if you buy a house for 800,000 Swiss francs, for example, you should set aside at least 2400 francs per year above the building’s basic running costs. Vintage houses and chalets often require more maintenance and renovations than newer buildings. If you cannot properly maintain a property, its value will suffer, and may even decrease over time.
6. Utility installations
If you are thinking about buying a plot and building your dream home on it, then you will want to consider the cost of electricity, water, wastewater, telecommunications, and road connections. When you buy semi-developed or previously-developed building land, some of these connections may already be present, and this can save you a lot of money.
Having to pay to have these connections laid can easily add 100 francs per square meter of property to your building costs. Costs may be higher or lower than that, based on how close the property is to utility and road networks. Prices also vary between utility providers and in some cases, you may have different options to choose from based on the amount of electricity or water you need.
For reference, in 2017 the cost of connecting a new home to electricity in areas serviced by the Stadtwerk Winterthur ranged between 2210 Swiss francs for a 17 kilovolt-ampere, 25 amp connection and 44,980 Swiss francs for a 346 kilovolt-ampere, 500 amp connection. In most cases 25 to 40 amps are sufficient, but the number of power-consuming appliances you expect to use must be taken into account. You will usually be able to upgrade the connection in the future, but the cost may work out higher than getting the right connection right from the start.
7. Buildings insurance
Most cantons require homeowners to take out buildings insurance. This insurance covers many possible hazards such as fire, lighting and flooding. While having this insurance does give you more peace of mind, it is an extra cost which you as a homeowner will have to deal with. Read the moneyland.ch guide to buildings insurance to find out exactly what is covered and what you can expect to pay.
It is worth noting that buildings insurance is not compulsory in the cantons of Ticino, Valais, Geneva and Appenzell Innerrhoden (with the exception of the municipality of Oberegg).
8. Public transportation
How well is your prospective home connected to public transportation? If you own a car, the thought of squeezing onto a bus or train might make you cringe, but in Switzerland, availability of public transportation can make all the difference in how much your home is worth, and how much its value will increase in the future.
Homes in areas with good bus connections typically command higher rents than those in areas with no public transportation. Add a nearby train station, and your chances of renting out the property at a good price go up considerably, especially if there is a direct train line to major urban centers.
9. Historical value
Compared to many other countries, Switzerland is a treasure trove of historical housing. From town houses dating back to the renaissance to 200-year-old chestnut chalets, your chances of finding vintage jewels are in Switzerland are good, to say the least.
However, historical value is difficult to measure because it is primarily about a unique or “feel-good” experience. Vintage homes will almost always require both a large amount of investment in renovation or even rebuilding. Plumbing and heating may need replacing, electrical work may need upgrading, the roof and walls may need insulating, and those are just the basics.
While a well-renovated and well-located historical property can draw a high price if you decide to sell it or rent it out, if you do not have the skills, knowledge, time and money to invest in properly pulling off a home makeover, a vintage home can become a very expensive hobby.
10. Cultural preservation laws
Many people are not familiar with Swiss laws governing the preservation of cultural buildings. In Switzerland, buildings of cultural or historical significance are protected by law. This is called “Denkmalschutz” in German. You may assume that this kind of protection would only extend to castles, roman ruins and other archeological rarities, but in fact there are numerous buildings under cultural preservation across Switzerland, most of which are lived in and bought and sold on the real estate market. If you are drawn to vintage housing, you will likely come across some of these in your house hunting.
While living in a historical home has its charm, owning one has its disadvantages. For one thing, there are very strict laws concerning the renovation or alteration of protected buildings. In most cases you will not be allowed to make alterations which significantly change the appearance of the building, and in some cases you will be obligated to maintain the structure’s unique look and character. Considering that many of these houses are largely hand-crafted, maintenance can get expensive, especially if materials or parts of the facade need replacing.
While owners of protected buildings do receive some tax benefits related to their investments in maintaining and renovating these houses, the many regulations involved give you very little room for creative play and the costs involved can put a long-term strain on your finances. Because of this, protected properties are not widely popular among homebuyers, and you may have a difficult time selling the building in the future.
As with other vintage properties, there are opportunities for those with the vision and the money. Anyone else should tread carefully. When looking at historical housing in particular, always check into whether or not the property is protected by cultural preservation laws.
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