Find out all the details and main steps of buying property in Switzerland with our complete guide, whether you are a Swiss citizen, an ex-pat, or a non-resident.
Characteristics of the Swiss property market
The Swiss property market
Despite some similarities with the markets of its neighbours, particularly France, the Swiss property market has some specific differences. One particular difference is the price of property which is relatively high in many Swiss cantons.
This means the average price of an apartment in Switzerland is six times the annual income of a Swiss household. This is even more with houses, whose average price is no less than eight times annual income!
These figures inevitably point to a further characteristic of the Swiss property market: high levels of rentals. Close to 60% of the Swiss population rent their homes with only 34% of Swiss citizens owning their main residence (compared to 50% in France).
This is explained by higher property prices and access to property conditions that are more complicated than in other countries along with a tax system that favours tenants over owners.
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Foreign nationals: how to buy property in Switzerland?
Foreign nationals resident in Switzerland
Of course, all Swiss nationals have the right to buy property in their own country, whether a main or second home. But what about foreign nationals living in Switzerland?
As far as nationals from member states of the European Union (EU) and the European Free Trade Association (EFTA) are concerned, they have identical rights to Swiss citizens in terms of acquiring property. These foreign nationals do not require any specific authorisation to buy a property in Switzerland.
But for third-country nationals, buying property in Switzerland is more complicated.
Third-country nationals have to meet the three following conditions to buy a main residence:
- possess an appropriate permit (normally a B permit or permis de séjour B);
- reside in the property they intend to buy (where they are domiciled there);
- In the case of a new build, works must begin at the latest one year after the land purchase.
If these specific conditions are met, no authorization is required to buy.
However, third-country nationals do require authorisation to acquire the following types of property (for which they need to apply to a Canton authority):
- holiday accommodation;
- aparthotel units;
- second homes.
NB: Foreign nationals who own property in Switzerland do not have the right to a permit.
Non-residents in Switzerland
Conditions for buying property are a lot more difficult for foreigners resident outside Switzerland, regardless of their nationality. For details of these restrictions, it is necessary to enquire with the relevant Canton authority, i.e. the Property Register or the Property Register Inspectorate.
However, Swiss legislation is more flexible when it comes to non-resident foreign nationals in Switzerland acquiring property for economic reasons (businesses, workshops, offices, etc.). In these specific cases, the future buyer does not require any authorisation!
Interesting fact: This is why a lot of foreigners who do not live in Switzerland (who are often French) create a business in Switzerland with the intent of obtaining a permit, so they can rent a property in the first instance and then buy a home after a required period of five years.
Finding and financing a property in Switzerland
Valuation and negotiating on price
Although buying property in Switzerland may be more complicated than in other EU countries, the basic steps of the buying process are relatively easy to grasp.
When you have chosen your perfect property, you need to have it valued. Your bank will normally arrange this, or to be more precise your mortgage application advisor. It is essential as your bank’s approval of your financing rests on its outcome, and determines the size of the loan.
It is virtually impossible to negotiate on the Swiss market. For good cause: sellers and builders alike are aware that the demand for property far outstrips supply. This means negotiation is very rare.
However, it can sometimes happen, particularly where it involves the purchase of an older property or if you have several buying options open to you that put you at an advantage. But it remains rare in Switzerland.
The valuation by your bank is a further negotiating lever: if this comes back at less than the asking price (so your loan is refused), you can use this argument to try to push the price down.
The bank’s valuation will determine the final purchase property price you have set your heart on unless of course, your seller is sure they will find a buyer willing to offer a higher price.
Important: The strong competition between buyers means you can be made to pay a higher price than you were expecting to get the house of your dreams!
How to finance your property purchase in Switzerland
Personal funds are a determining factor in the property purchase process specific to the Swiss property market. To become a property owner in Switzerland, you need to put down a deposit of a minimum of 20% of the total purchase price of your future home. This amount, known as the taux d’avance, corresponds to the personal deposit required by the French system.
This means that to buy a property worth 1,200,000 Swiss francs, you would need to put down a deposit of at least 240,000 Swiss francs of your own money.
NB: The rule regarding a 20% minimum deposit applies in all Cantons and all banks. Without this deposit it will be impossible to buy an apartment or a house – no matter how much your monthly income.
The deposit amount is not the only constraint – it needs to be made up in a specific way:
- 10% (minimum) must come from your funds (savings, life insurance, workplace pension – known as the 3rd pillar in Switzerland);
- 10% must come either from your funds or your state pension (2nd pillar of the Swiss Pension Fund).
Useful tip: If you are an ex-pat and your deposit is not in Swiss francs, it is a good idea to use a specialised online currency exchange service like b-sharpe. It is more economical than going through a bank!
Debt ratio calculation
As well as your deposit, your debt ratio or borrowing capacity is a deciding factor in financing your property purchase. It allows the bank to calculate the maximum amount that you are in a position to borrow (and repay, of course) in relation to your annual income.
Handy tip: It is best to calculate your borrowing capacity before making any applications to the bank, so you can look for properties that match your budget.
Your debt ratio is calculated using your future monthly installments and your income. At most Swiss banks the total charges related to buying your property (monthly mortgage payments, maintenance costs, etc) must not exceed 33% of your gross annual income. This calculation takes into account other possible existing costs (another loan, leases, etc).
Key to financing property purchases in Switzerland, the mortgage loan is the amount your bank agrees to lend you if you fulfill the conditions described above (deposit and borrowing capacity), to buy your property.
The total mortgage cannot be more than 80% of the total purchase price of your future property as this tallies with the deposit amount.
The amount your bank lend is divided into two parts:
- the first part – covers 0–65% of the value of the property;
- the second part – covers 65–80% of the value of the property.
This is another peculiarity of buying property in Switzerland. In France and Spain the buyer must repay the total sum borrowed on a certain date, buyers in Switzerland only need to repay the second part of their mortgage.
The first part of a mortgage is not repayable: the borrower just pays interest and keeps the debt with their bank. The second part is repayable: the borrower pays back both capital and interest. This system, specific to Switzerland, allows you to benefit from a tax reduction as the interest is deductible.
The financing of your property purchase is typically structured as follows:
- 20% deposit;
- 15% mortgage (second part)
- 65% mortgage (first part)
The property purchase process in Switzerland
Using a notary
Once you have found your property at the right price, and your mortgage is in the bag, you will complete your purchase through a notary.
In the majority of cases, the buyer chooses the legal expert who handles the transaction authentication. This is an essential stage as, without the notarising process, the property transaction will not be legal and your purchase will be invalid.
First, your notary will draw up a sale agreement that you need to sign along with the seller. This agreement ‘locks in’ the property and forbids your seller from selling it to anyone else. In exchange for this, you must make a payment on account, the sum of which will be up to 10% of the total value of the property.
Important: If you are a non-resident, these administrations may not be completed unless the relevant Canton authority has given its agreement for the sale to go ahead. This normally takes between two to three months. In the case of a refusal, your deposit will be returned to you but you will still need to pay the notary fee.
Once these first steps are complete, the notary draws up the act of sale which must be read and signed by both parties and then registered with the relevant Canton’s property registry. You must then place the remaining 90% of the total purchase price of the property in escrow with the notary.
For the sale to be completed, the notary transfers the sum held in escrow to the seller and transfers ownership of the property to you; you then receive, in a fortnight or so, an extract from the property register confirming that the property now belongs to you.
Swiss property tax
Tax is another important point to consider when buying property. The Swiss system involves a few specific taxes and it is worth familiarising yourself with them before buying a property in Switzerland.
Firstly, a Swiss property owner is liable for property tax. This is paid at a rate of 3% maximum. Swiss property tax is collected every year and is calculated according to the market value of the property, in relation to supply and demand on the Swiss market.
However, the tax is not levied in some cantons, including:
- Zurich ;
- Schwytz ;
- Zoug ;
- Soleure ;
- Bâle-Campagne ;
- Glaris ;
- Neuchâtel ;
Swiss wealth tax
In contrast to Swiss property tax, Swiss wealth tax is calculated according to the tax value of a property rather than its market value. As a result, any interest paid to your bank will be deducted from the taxable value of the property.
Handy tip: Wealth tax rates are not the same in every canton.
Tax on rental value
A tax peculiar to Switzerland, the tax on rental income is normally misunderstood by non-Swiss nationals. It is a tax that corresponds with the revenue an owner could collect from renting out their property.
Tax on rental income is really an income tax based on the rental value of the property. The explanation for this is that Swiss legislation considers a property owner to benefit, in theory, from extra income, as they do not pay rent.
Handy tip: As the tax on rental value is calculated using the amount of capital paid off a mortgage, the more has been paid off, the more tax is paid.
Other costs involved in buying property in Switzerland
On top of the taxes paid by new property owners in Switzerland, there are other costs to consider, i.e:
- notary fees – usually 0.02–1% of the total purchase price;
- cost of registering the deeds – usually 1–1.5% of the total purchase price, depending on the canton;
- land transfer tax – usually 4% of the total purchase price, although it can vary by canton (for example, it is not payable in Zurich);
- Value-added tax (VAT) – usually 7.6%, although it can vary by canton.
High prices, the need for a deposit, a mortgage. There are many facets to the Swiss property market. Whether you are a Swiss citizen, an ex-pat or a non-resident, now you know the way the system works and you can handle your property purchase with peace of mind.
If you are an expat, you will need to exchange your currency into Swiss francs at some point during the purchasing process. Fortunately, b-sharpe is the leading online exchange service and we are delighted to make our secure and economic service available to you!