Lex Koller: tightening foreign real estate purchases (cross-border guide)

Context

In a nutshell

• CET-N proposes to cancel changes to the Lex Koller of the last 40 years
• Objective: to curb speculation and reduce land and property prices
• The project aims to limit purchases by people residing abroad
• Open discussion on stricter restrictions also for EU citizens and border crossers

Key facts

• What: Motion to strengthen Lex Koller (LAFE)
• When: Proposal discussed by the CET-N, with review by the Federal Council
• Where: Switzerland
• Who: National Economic and Tax Commission (CET-N)
• Amount: Over 1.5 million net immigration since 2002

The National Economic and Tax Commission (CET-N) has adopted a motion that marks a potential return to the past for the Swiss property market. The parliamentary act, promoted by National Councillor Thomas Aeschi (UDC/ZG), asks to annul all the changes made to the "Lex Koller" in the last fortyyears. The declared intention is to restore the regulatory situation prior to 1985, by acting on the federal law on the purchase of funds by people abroad (LAFE). The main reason given by the parliamentarian concerns the growing difficulties that middle-class families encounter in trying to buy a home. This criticality also involves small and medium-sized enterprises, often looking for suitable spaces for their operational activities.

According to the analysis proposed by Aeschi,

Operational details

The revision project of the 'Lex Koller' presented by the Federal Council outlines a significant change in the authorization regime for real estate purchases. The new provisions aim to specifically target foreign demand by introducing stricter constraints for commercial and residential properties. Regarding commercial real estate, residents abroad would no longer have the right to purchase them for rental purposes, being able to maintain the purchase without authorization only if intended for direct use in their own business. This measure directly affects the management of real estate assets by international entities.

Impact on real estate and financial companies

A further pillar of the crackdown concerns the general prohibition for foreigners to purchase listed shares of residential real estate companies. The restriction extends to regularly traded shares of real estate funds and SICAVs, financial instruments that have so far allowed foreign investors to access the Swiss market by bypassing the classic limitations of the law. Analyzing the positions that emerged during the consultation that ended in July, a clear divide is evident. While on one hand the SP and the SVP welcome the tightening, seeing it as a necessary bulwark to protect the purchasing power of tenants and those looking for homes, on the other hand, The Centre and real estate companies warn about the possible negative repercussions on the national economic system. The fear is that overly rigid regulation could slow down investments in an already complex sector.

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Key points

To understand the implications of the proposed revisions for your personal situation, it is necessary to monitor the legislative process involving the Federal Council and Parliament. The consultation procedure has already provided a glimpse of the political positions, highlighting that the issue is far from resolved. Those who own real estate or intend to invest in real estate fund shares must be aware that the regulatory framework could undergo substantial changes in the near future. The current 'Lex Koller' rules remain in force, but the possible approval of the proposed restrictions would entail an adjustment obligation for those acting through corporate vehicles or investment funds.

Steps for investors to monitor

Those operating in the real estate sector or planning to purchase a residence in Switzerland should follow these steps:

• Verify your position in relation to the current Lex Koller authorizations required for the purchase of funds by persons residing abroad.
• Consult official updates from the Federal Council regarding the progress of legislative bills to anticipate potential restrictions on the purchase of shares or real estate fund units.
• Evaluate, together with tax advisors, the impact of the proposed tightening on your long-term investment strategies, especially if operating through corporate structures.
• Monitor the decisions of the Cantons, which could implement federal directives differently based on their specific territorial needs and local housing pressure.

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