Residential Property

Many people living and working in Switzerland consider at some stage whether to buy property. This may be a primary residence, or alternatively a secondary residence, maybe in the Swiss or French Alps.

There are many potential considerations, which may vary according to whether you are looking to buy a primary residence or a holiday home, for example;

1. Where should I buy – Switzerland or France?
2. What are the pro`s and con`s of each?
3. Do I need authorisation to buy?
4. Where can I find property details?
5. How much can I afford?
6. How much should/can I borrow?
7. How should I finance the purchase?
8. What purchase costs are involved?
9. What are the legal considerations?
10. What are the tax implications?
11. Do I need life insurance?
12. How does the house - buying process work?

In the following sections, we have covered a number of these issues in broad outline. However, everyone`s circumstances and needs are different, and you may have many other questions to ask. For more information or to arrange an initial exploratory meeting, contact your local Blackden Financial office in Geneva, Lausanne or Zurich, or e mail us on info@blackdenfinancial.com

Where should I buy – Switzerland or France, and what are the pro`s and con`s of each?

House prices have historically been very stable in Switzerland, and with capital gains tax levied on individually owned real estate, house purchase in Switzerland is best considered as a lifestyle choice rather than as an investment decision. If the purchase is primarily investment driven, you should be considering a 10 year term if you wish to optimise total returns compared against total purchase costs.

By contrast, France has recently seen quite significant property price growth, and this is particularly true of the French departments which surround Geneva. However with a strengthening Euro v Swiss Franc exchange rate, prices have fallen from their highs recently. Even so it is generally still true to say that you can buy more for your money in nearby France than Switzerland.

There may be resale restrictions on the bought property; in some Swiss cantons, notably the Valais, foreign buyers cannot sell their property within 5 or 10 years of purchase. There may also be restrictions on renting out the property. Switzerland also levies a property tax on a notional rental value of the property, less any related mortgage. The amount payable varies according to each canton. In addition, depending on how long you have owned the property, and whether it is your main residence, capital gains tax may also be due on the sale of the property. This will vary from canton to canton and it may be possible to offset certain property renovation costs against any capital gains tax payable.

On balance, (and excluding any potential restrictions on who may purchase property in each country), the final decision as to where you decide to buy is one based mainly on lifestyle issues, although there are significantly different tax regimes relating to property purchase in each country.

Do I need authorisation to buy?

In Switzerland expatriates who are considering purchasing property in Switzerland should be familiar with “Lex Friedrich,” the Federal Law on the Acquisition of Real Estate by Non- Residents, a law which has been in force since January 1985. Named after the former federal justice minister Friedrich, it restricts the ownership of real estate in Switzerland by non-residents. Resident expatriates who may buy property without restriction or special authorisation include those holding a C-permit or working in embassies, consulates, and international organisations. They must have held resident status for either five to ten years, depending on nationality. EU citizens with a Swiss permit B (and all foreign buyers with a permit C) can buy as many properties as they like. Foreign non - Swiss national buyers without a Swiss permit B or C need a "permit to purchase" (or "authorization") to buy property in Switzerland. Authorisations are obtained through a Swiss notary who applies to the relevant cantonal authority. Each Swiss Canton has a yearly quota of authorizations and it usually takes 3 months to obtain one.

Where can I find property details?

The first source for most prospective house purchasers is the internet, although in both France and Switzerland you will find ‘Immo’ magazines advertising properties for sale. There are of course many other ways to search for properties including the traditional route of the estate agents, or the less usual route of appointing a house search agency. Most Swiss, and some French real estate agents will offer an English speaking service to some degree.

How much can I afford, how much should/can I borrow, and how should I finance the purchase?

In Switzerland, it is usually necessary to place a deposit of 20% of the house purchase value, although in certain circumstances it is possible to bring a deposit of only 15%. In France, by contrast, it is possible in certain circumstances to borrow up to 100% of a property’s value, although usually a 10% deposit will be required. The amount you can borrow will depend largely on your income, and typically this will be calculated on the simple basis that one third of your total monthly income can be used to service the mortgage. Income from rental can be taken into consideration, although this will normally be accepted at a maximum rate of 80 percent of the actual rental income received. In both Switzerland and France there is a wide range of potential lenders available, offering different conditions and range of interest rates. In addition, residents of Switzerland or neighbouring France can use their Swiss pension capital from their second or third pillar pension schemes as a form of deposit (by withdrawal or pledge), although there are restrictions on the subsequent sale of the property and tax implications with this approach which need to be carefully considered. Blackden Financial acts as an independent mortgage advisor and can help guide you through the maze of considerations, and help you source the right mortgage deal to fit your requirements.

What purchase costs are involved?

In both Switzerland and France the purchase of a property will necessitate the involvement of a Notaire. Notary costs vary from circa 8% in France to around 5% in Switzerland, this latter depending on the canton of residence, and including Swiss federal purchase tax. In addition there will typically be agent’s fees, although these will usually be paid by the seller. Some banks, particularly in France, will charge arrangement fees, usually up to 1% of the loan amount.

What are the legal considerations and what are the tax implications?

These are multiple, and specialist advice is required in both areas. The matters for consideration will range from issues of succession or estate planning – for example both France and Switzerland still operate the Napoleonic system of forced succession, although under various international conventions these can at times be circumvented according to your nationality - to tax matters, including how you chose to own the property (whether individually or via a property company), and how to mitigate current and future property, income and capital gains taxes. Whilst Blackden Financial does NOT offer tax or legal advice, we can introduce you to specialists in this area. See our Professional Partners page.

Do I need life insurance?

In Switzerland this is not always necessary, although it is usually advisable. Any Swiss registered insurance policy should suffice, although rates do vary. www.comparis.ch is a good guide for rate comparison. The usual practice is to ensure the amount of the loan in full, and if buying in France you will always need life insurance to cover the entire loan. In France some lenders insist that you use their own policies and some will insist that disability cover is included as well as life cover. In Switzerland, Blackden Financial can help you find a competitive quote on life insurance.

How does the house - buying process work?

Switzerland

To acquire property in Switzerland buyers must instruct a Swiss notary (Notaire) who will obtain a permit to purchase (if one is required), ensure all legal formalities are dealt with and register the property purchase. A deposit will be required to be made before proceedings can commence. The appointed notary also represents the property seller and oversees the property sale and purchase. The purchase is completed on registration at the Swiss Land Registry. Buyers may also need advice from a Swiss tax advisor on Swiss tax implications and a Swiss property lawyer on any legal implications.

France

To acquire property in France, buyers must instruct a French notary (Notaire) who will ensure the entire property purchase process is conducted with impartiality and according to French law. A notary is a public official who can legally act for both vendor and purchaser, although bit is more usual to appoint individual notaires. A Notaire can also advise on the various ways to establish the ownership of your French property, according to the various options under French Succession legislation. The first stage is to agree a purchase price, agree what is being bought / offered and sign a Compromis de Vente at a Notaire. This then, subject to certain ‘conditions suspensives’, binds both seller and buyer, subject to certain penalties if the agreement is broken. At this stage a deposit of between 5% - 10% of the property price is deposited with the notaire. The final ‘acte authentique’ or deed of sale will typically happen 2 – 3 months after this date.