New restrictions for foreign real estate investors in Switzerland

Context

TL;DR

• Switzerland tightens rules on foreign real estate investments.
• Ban on speculative investments and stricter vacation home rules.
• Foreign investors must obtain authorization for commercial real estate purchases.
• New regulations to enter into force on January 1, 2025.

Key facts

• Legislation: Lex Koller
• Consultation End: October 15, 2023
• Entry into Force: January 1, 2025
• Holiday Homes Quota: Reduced from 1,500 to 750 units annually
• Resale Obligation: Within two years if property is not used as main residence
• Average Property Price: 12,000 CHF per square meter in Lugano
• Authorizations Granted: Around 5,000 annually for non-resident foreigners
• Special Authorization: Required for purchases exceeding 5 million CHF

The Swiss Federal Council has decided to review the historic law that regulates the purchase of real estate by non-resident foreigners, known as Lex Koller. The revision, currently in the consultation phase until October 15, 2023, provides for a significant tightening of existing regulations. Among the proposed measures are the ban on speculative investments, stricter rules on vacation homes, and the obligation to sell for those leaving the country.

Concrete Changes

The changes proposed by the Government are far-reaching. First, the project aims to ban the purchase of commercial real estate purely as an investment. People residing abroad will only be able to proceed with the purchase if they use the property directly for their economic activity. The sale aimed at leasing would, in fact, be prohibited again.

"This measure aims to prevent real estate speculation and to ensure that commercial properties are used for productive purposes," declared the Federal Council.

An even stricter tightening is planned for indirect investments. The purchase of shares in listed real estate companies and participations in real estate funds and SICAVs would again be subject to authorization, effectively creating a generalized ban. For example, a foreign investor who currently owns shares in a real estate company listed in Zurich will need to obtain authorization to maintain such investments.

Operational Checklist for Investors

• Residence Verification: Ensure you are residents in Switzerland for at least 183 days a year.
• Purchase Authorization: Request authorization for the purchase of commercial real estate if not resident.
• Direct Use: Demonstrate that the commercial property will be used directly for economic activity.
• Mandatory Resale: Plan to resell the property within two years if not used as the main residence.

Comparison of Practical Scenarios

Current Scenario:

• A foreign investor can purchase a commercial property in Lugano to rent it out, generating rental income.

Post-Reform Scenario:

• The same investor will have to demonstrate that the property will be used for their economic activity or obtain specific authorization for leasing.

The reform also intervenes on main residences. Citizens of third countries domiciled in Switzerland would again be forced to request authorization for the purchase. Furthermore, if the property ceases to be used as the main residence, the obligation to resell within two years would apply. For example, an Italian citizen who buys a house in Bellinzona will have to resell it if they decide to move abroad.

Concrete Examples with Real Numbers

• Average Property Prices: In Lugano, the average price of an apartment is approximately 12,000 CHF per square meter.
• Impact on Vacation Homes: In the Canton of Ticino, 30% of properties are used as vacation homes by foreign citizens.
• Authorizations Required: Currently, around 5,000 authorizations are granted annually for the purchase of real estate by non-resident foreigners.

Regulations with Dates and Amounts

• Entry into Force Date: The reform is expected to enter into force on January 1, 2025.
• Maximum Amounts: The purchase of real estate for an amount exceeding 5 million CHF will require special authorization.

Comparisons Between Cantons

• Canton Ticino: Greater rigor in authorizations for vacation homes.
• Canton Zurich: Greater flexibility for indirect investments.

These changes aim to stabilize the Swiss real estate market, preventing speculation and ensuring that properties are used productively. Foreign investors will need to adapt to the new regulations to continue operating in the Swiss real estate market.

Operational details

Holiday homes

A particularly sensitive chapter concerns holiday homes. The Federal Council, with the amendment of January 1, 2024, proposes to halve the annual national quota of authorizations for purchase, reducing it from 1,500 to 750 units, and to reintroduce the counting of property transfers between people residing abroad within these quotas. According to the Government's assessments, this measure would help limit the proliferation of second homes and free up housing in regions under greater pressure, notably in tourist areas.

For example, in Ticino, municipalities such as Ascona, Locarno, and Lugano have seen a significant increase in second homes, with a direct impact on the local real estate market. The new regulation could reduce the number of annual transactions from around 300 to 150 in the canton, directly influencing demand and property prices.

Implications for cross-border workers

The new restrictions could have a significant impact on cross-border workers who wish to purchase a property in Switzerland. In particular, the reduction in the quota for holiday homes could make it more difficult to buy a second home in tourist resorts. Furthermore, the obligation to sell the property for those leaving the country could deter some cross-border workers from investing in real estate in Switzerland.

📊 Practical scenario: An Italian cross-border worker who works in Lugano and wants to buy a holiday home in Locarno will now have to compete with a reduced quota, increasing the difficulty of finding an available property. Moreover, if they decide to leave Switzerland, they will be obliged to sell the property within a maximum period of two years, as established by the new regulation.

💡 Operational checklist:

• Check if the desired property falls within the reduced quota.
• Consult a legal expert to understand the implications of the new regulation.
• Consider the possibility of buying a main residence instead of a second home.
• Monitor the evolution of the local real estate market.

What to do if you already own a property

If you already own a property in Switzerland, it is important to monitor the evolution of the situation and consult a legal expert to understand how the new rules might affect your specific situation. In particular, it is crucial to understand whether the property in question is considered a main residence or a holiday home, and if there are any obligations to sell.

⚠️ Warning: The new regulation provides that properties purchased as second homes by residents abroad are subject to an obligation to sell within two years in case of a definitive transfer outside Switzerland. This could have a significant impact on the value of the investment and long-term financial planning.

📊 Comparison of scenarios:

• Scenario 1: A cross-border worker owns a holiday home in Ascona. With the new regulation, if they decide to leave Switzerland, they will have to sell the property within two years, which could result in a financial loss if the real estate market is declining.
• Scenario 2: A cross-border worker owns a main residence in Lugano. In this case, they are not subject to the new restrictions and can keep the property without any obligation to sell.

"The new regulation aims to balance demand and supply in the Swiss real estate market, while protecting local communities from the saturation of second homes." - Spokesperson for the Swiss Federal Council.

In conclusion, the new restrictions for foreign real estate investors in Switzerland require careful planning and specialized legal advice to successfully navigate the Swiss real estate market.

Useful planning tools

To estimate your pension strategy, use the pension planner and the pillar 3 simulator.

Key points

What to Do Now

If you are considering buying a property in Switzerland, it is crucial to act promptly. New regulations, expected to come into effect at the beginning of 2025, will introduce stricter restrictions for foreign investors. For example, in Lugano, the average price of a residential property is around 7,500 CHF per square meter, but with the new rules, you may need to obtain prior authorization, especially for non-resident buyers. It is advisable to start the purchasing process by the end of 2024 to avoid complications.

Operational Checklist:

• Residence Verification: Ensure you have a valid residence permit or are compliant with the regulations for cross-border workers.
• Legal Consultation: Consult a lawyer specializing in Swiss real estate law to understand the implications of the new regulations.
• Financing: Obtain pre-approval for a mortgage, keeping in mind that Swiss banks typically require a down payment of 20-30% of the property value.
• Documentation: Prepare all necessary documents, including income and residence certificates.

Useful Tools

For a more accurate assessment, you can use the salary calculator to estimate your net income in Switzerland. For example, a gross salary of 100,000 CHF in Ticino translates to a net income of approximately 78,000 CHF, considering cantonal and federal taxes. Additionally, the guide to buying property in Switzerland provides details on the purchasing process, including registration and notary costs, which vary between 0.5% and 2.5% of the property value.

Practical Comparisons:

• Scenario 1: An Italian cross-border worker buying an apartment in Bellinzona (average price 6,800 CHF/sqm) will have to pay approximately 15,000 CHF in registration taxes.
• Scenario 2: A non-resident buyer purchasing a villa in Locarno (average price 8,000 CHF/sqm) may need to obtain prior authorization, with approval times that can take up to 6 months.

Conclusion

The new restrictions for foreign real estate investors in Switzerland will significantly impact cross-border workers who wish to purchase a property. It is crucial to act quickly and consult a legal expert to successfully navigate the Swiss real estate market. By using the right tools and following an operational checklist, you can make informed decisions and avoid surprises.

Source: tvsvizzera.it