Swiss real estate for Chinese investors

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    The acquisition of Swiss real estate by non-Swiss residents is regulated by the Swiss Federal Act on the Acquisition of Real Estate by Persons Abroad, commonly referred to as Lex Koller (Arnold Koller was the Swiss federal councillor of justice at the time of the most recent amendment of the act).

    While Swiss legislation is very liberal regarding the acquisition of commercial real estate by foreign investors, Lex Koller imposes significant restrictions on acquisitions of residential real estate. This applies in essence to both asset and share deals concerning real estate.

    Roland Mueller Partner VISCHER
    Roland Mueller
    Partner
    VISCHER

    Asset or share deal. Like domestic acquirers, foreign investors can purchase Swiss real estate either directly (asset deal) or indirectly by acquiring shares in a real estate company (share deal). The asset deal agreement must be authenticated by a Swiss notary public, and be filed and – to complete transfer of the ownership – registered in the land register of the district or state where the real estate is located. The share transfer agreement is typically in writing (no notarial involvement required) and will be closed by endorsing and/or handing over the respective share certificates, or by the execution of a transfer deed.

    Acquisition of commercial real estate. A foreign investor may acquire Swiss real estate, which serves a commercial purpose such as a manufacturing site, warehouse, office or retail space. The commercial activities do not need to be carried out by the foreign investor. He or she can, for instance, acquire and rent out commercial properties to tenants who carry out their commercial activities. No permit is required from Lex Koller authorities to purchase such commercial properties. In the case of an asset deal, the foreign investor only has to declare to the land register, in writing, that he or she has acquired the property for commercial use. Likewise, no Lex Koller permit is required for the acquisition of commercial real estate by means of a share deal. The foreign investor, however, has to declare to the Commercial Registry, in writing, that he or she has acquired control over the company and (indirectly acquired) real estate for commercial use.

    The acquisition of vacant land parcels or parcels with buildings to be demolished, however, typically requires a filing with the Lex Koller authority of the district or canton where the real estate is located. Such authority will issue a declaratory order to the land register or the Commercial Registry if it is established that the zoning laws permit the commercial use, and that the lot is not over-sized for the intended commercial use and building project.

    The order typically also includes a duty to start the commercial use and building project within a specified time, and imposes the duty to sell the property, if such development does not occur within the time limit set.

    Eric Flueckiger Senior Associate VISCHER
    Eric Flueckiger
    Senior Associate
    VISCHER

    Acquisition of residential real estate. Investors who are neither Swiss nor EU/EFTA (European Free Trade Association) citizens, such as Chinese investors, are only in exceptional cases permitted to acquire Swiss residential real estate. Most notably, a Chinese citizen with residence in Switzerland is entitled to purchase real estate for his or her dwelling without the need for a permit from Lex Koller. The foreign individual acquirer only has to declare to the land register, in writing, that he or she has acquired the property for the purposes of his primary residence. Further, in some tourist areas of Switzerland, a foreign investor may be granted a permit to purchase a secondary residence. The number of such permits is limited, and since 2012 the construction of new secondary residences in many tourist areas of Switzerland is restricted.

    The acquisition of a residential property company with shares listed on a Swiss stock exchange is not subject to a permit, however, once the foreign investors hold more than one-third of the voting or company capital no further residential property can be acquired.

    Circumvention of Lex Koller. Circumventing Lex Koller can lead to criminal prosecution. Acquisitions of Swiss real estate are in general null and void if a circumvention of Lex Koller is established. There are notable cases where the Swiss Supreme Court has declared Swiss corporations, which were established to conceal non-permitted real estate acquisitions, null and void, and the respective real estate confiscated in favour of the state (examples for circumventions: the conclusion of perennial or otherwise unusual rental agreements, financing of real estate by unusually high loans, appointing a fiduciary with Swiss nationality, etc.).

    Letting of real estate. When leased real estate is purchased, the new owner enters into all rental agreement(s) in force as the new landlord. Usually, commercial rental agreements run for an extended period such as 10 years, and termination before the agreed period is possible only for good cause. On the contrary, the general period of notice for residential property is three to six months.

    It is important to note that the Swiss legal provisions governing tenancy provide strong protection of the tenant’s rights and interests. For example, the tenant has the right to ask the competent authority to examine the rent or to extend the lease period because of abusive termination.

    The general client-focus of the Swiss authorities in connection with the legal certainty in Switzerland creates an interesting business environment for investments in the Swiss real estate sector.

    Dr Roland Mueller is a partner at VISCHER and a Swiss Bar Association certified specialist in construction and real estate law. He can be contacted on +41 58 211 33 50 or by email at [email protected]
    Eric Flueckiger is a senior associate at VISCHER. He can be contacted on +41 58 211 39 05 or by email at [email protected]