Avoiding the sinkholes when investing in Swiss real estate

By Felix Egli and Wu Fan, VISCHER
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Switzerland’s political stability, economic prosperity, central geographic situation within Europe and natural beauty, as well as superb architectural and construction quality, all contribute to Swiss real estate being in an investment class of its own, particularly favoured by foreign investors seeking safe investment with stable returns.

A small mountainous country, Switzerland has on the other hand only limited land available for construction. To protect the real estate market from overheating and speculation, the acquisition of Swiss real estate by foreigners has long been limited by law (Lex Koller) – cantonal authorisation is needed before gaining title.

Felix Egli 菲谢尔律师事务所 高级合伙人、中国业务部主管 Senior Partner, Head of China Desk VISCHER
Felix Egli
Senior Partner, Head of China Desk
VISCHER

Commercial property

In the past few years, the Swiss real estate market has enjoyed continuous liberalisation. Today, foreign investors are no longer discriminated against when acquiring commercial, as opposed to residential, real estate.

Commercial real estate includes factory buildings, warehouses and storage areas, offices, shopping centres, shops, hotels, restaurants, workshops or doctors’ offices, but excludes the construction and letting of homes.

The acquisition of commercial real estate by foreign investors is not subject to a permit or any other discriminatory restriction; commercial real estate can be used by the owner itself, let or held solely as a capital investment.

However, should a company own commercial real estate and undeveloped land, its acquisition by a foreign investor will only be tolerated, as a rule, if the undeveloped land accounts, as a rule, for less than a third, and no more than half, of the total real estate surface area, and is developed within a year.

Should the company own commercial and residential real estate, its acquisition would only be tolerated if the residential real estate accounts for not more than 20% to 33% of the total real estate surface area (the range depends on the particularities of the case and the practice of the competent authorities).

Still heavily restricted are investments and trade in residential real estate including purchases of a controlling stake in privately held residential real estate companies by foreign or foreign-controlled companies.

吴帆 Wu Fan 菲谢尔律师事务所 中国业务部 顾问 Counsel China Desk VISCHER
Wu Fan
Counsel
China Desk
VISCHER

To date, investments in residential real estate by foreign or foreign-controlled companies have very rarely been permitted by the Swiss government on the grounds of prevailing national interests, one of the rare examples being the acquisition of undeveloped land for residential purposes in the structurally weak region of Andermatt by the Egyptian-controlled Orascom Development Holding.

Nevertheless, the following exceptions apply:

  1. The purchase of shares, even a controlling stake (defined as more than 33% of the outstanding voting capital), in a stock exchange-listed residential real estate company is allowed, but in case of a controlling stake the target company will arguably have to divest its residential real estate.
  2. Foreign non-EU/European Free Trade Association (EFTA) individuals legally resident in Switzerland are allowed to acquire a home as their main residence, but this must be at their place of residence.
  3. Non-EU/EFTA individuals, even if domiciled abroad, may be allowed by one of the 26 Swiss cantons, or states, to acquire a holiday or secondary home, whether apartment or house, for their personal housing needs (as opposed to purchases for purely financial investment purposes), subject, however, to the federal law restricting the share of secondary homes and space to 20% of the total homes and residential space of the relevant municipality.
  4. Foreign and foreign-controlled banks and insurance companies are granted permission to acquire Swiss residential real estate to secure their mortgage loans in case of the borrower’s liquidation by bankruptcy or composition with creditors.
  5. Foreign or foreign-controlled insurance companies are granted permission to invest in residential real estate if the value of their entire real estate does not exceed the technical reserves for their Swiss activities.

For Chinese providers of free trade agreement (FTA) scheduled services, the Sino-Swiss FTA – which entered into force on 1 July 2014 – converted the above-mentioned exceptions into commitments by Switzerland to permit Chinese buyers to acquire the relevant residential real estate if affecting the supply of the FTA scheduled services. While exceptions 4 and 5 were already granted under the General Agreement on Trade in Services (GATS), Switzerland’s FTA commitment to grant exceptions 1 to 3 exceeds its GATS commitments.

Migration through property purchase?

Unlike many other countries where real property supplies are abundant and the population is thin, Switzerland does not give a person the right to reside simply by owning property in the country. If you have invested in Swiss commercial property, your entry into Switzerland, or establishment permit, will still be subject to the Swiss aliens law, however with preferred treatment for investors (also provided for in the Sino-Swiss FTA). If you are a holiday home owner, your regular entry visa is most likely secured.

As a Chinese national legally resident in Switzerland, you may be holding a permanent residential permit (C permit) or residential permit (B permit). Persons with a C permit are deemed native for purposes of Lex Koller, and they can buy commercial and residential property freely.

Place of residence

Persons with a B permit qualify as “exceptional foreigners” (see point 2).They may buy one, and only one, single-family house or owner–occupied flat in their actual place of residence without having to apply for authorisation, and the buyer must live in the dwelling and cannot rent it out, even in part.

Generally there are no limitations on the size of the dwelling; but it just cannot be so large as to be suspected of being for investment purposes. When the property size exceeds 3,000 square metres, the land registry will refer the buyer to the building permit authority, which will rule on the permissibility of such cases.

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