In a nutshell: Switzerland is a beautiful country, has a very stable government and a currency that will likely continue to appreciate against the Euro and U.S. Dollar. But due to extensive limits placed on foreign ownership of real estate, and high capital gains taxes, it is not a country where you can expect to make a decent return. However, you might consider investing in Switzerland if it’s a country where you want to live full or part time, or you want a safe haven for some of your assets.
Politics
In October, 2019, the Swiss election to their 200-strong federal parliament has seen the biggest win for green politics ever in Switzerland and a significant defeat for anti-EU, and anti-immigrant political forces.
Switzerland is part of the European Union, but retains its own currency, the Swiss franc. Currently, the Swiss franc is valued at $1.02 U.S, which has held fairly steady for most of the last 5 years.
Three political levels share power in Switzerland: the Confederation (federal government), the 26 cantons and over 2,250 communes. Most real estate laws are governed at the federal level, but implemented with further restrictions at the cantonal and communal level.
Economic Outlook
The economy of Switzerland is one of the world’s most advanced free market economies. The service sector has come to play a significant economic role, particularly the Swiss banking industry and tourism.
In September, 2019, the Swiss government cut its growth forecast by a third, citing as risks the escalating trade war between China and the United States, the rising Swiss franc and the drastic slowdown in neighboring Germany. Government economists now expect the country’s economy to grow by 0.8% in 2019, down from the June forecast of 1.2% and well below the long-term average increase of 1.7%.
Economic growth should gradually pick up in 2020, as a tight labor market and rising disposable incomes power consumer spending. Even so, uncertainty over trade tensions and Brexit will continue to weigh on investment, and could fuel safe-haven demand for the franc, which would hinder exports. Strained Swiss-EU relations also cloud the outlook. GDP is expected to grow 1.2% in 2020, and 1.4% in 2021.
Real Estate Investing
Switzerland is a difficult and expensive market for non-residents to invest in. As a foreign investor, for holiday properties, you must get a permit to buy a property, and Switzerland limits these permits to 1500 per year. Also the regions where non-residents can buy are limited to select resort areas in the South of Switzerland.
If you buy a property as a main residence, you must apply for Swiss residency at the time you are purchasing the property. You must live in the property full time and will not be allowed to rent it out for any period of time.
Some examples of popular tourist destinations in Switzerland:
- Grindelwald: Foreigners can only buy properties valued over 750,000 Swiss francs
- Murren: No local restrictions but properties hardly ever come onto the market
- Interlocken: Some properties available to foreigners under special situations
- Davos: Open to foreigners but few properties come to market
- Zermatt: Totally off-limits to foreign buyers
Short Term Rental Regulations
If you own the property as a primary residence, you are not permitted to rent it out for any length of time.
Holiday properties can be rented out short term, but there will be limits set at the local level. These local regulations differ greatly among the different Cantons and Communes.
Fees to Buyer When Purchasing and Selling a Property
Transaction fees in Switzerland are some of the lowest in Europe when buying a property. The total purchase costs are usually in the region of 3% to 3.8% (purchase tax, land registry fees & notary’s fee) in most Cantons. Canton Vaud is the outlier with total purchase costs closer to 5%. All transaction costs are payable by the purchaser.
Swiss Property Taxes and Capital Gains
Generally speaking, property tax is calculated on the full taxable value of the property. Some cantons have decided not to levy this tax. The remaining cantons apply a variety of systems typically from .05% to .3% of the value of the property.
There are no capital gains taxes on real estate at the federal level. But each canton does assess a capital gains tax and they can vary from 12.6% to 60%! The longer an asset is held, the lower the rate. But it is critical to find out specific tax requirements within the specific canton where you are thinking of buying.