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LIVING IN SWITZERLAND

Reader question: Does buying a home make financial sense in Switzerland?

Switzerland has the lowest home ownership rate in Europe. Does it make sense to buy a house or apartment?

A small wooden house on the grass
Does it make sense to buy property in Switzerland? Image: Pixabay

Less than 50 percent of Swiss residents own their home, making it the only country in Europe where more than half of the country rents. 

The reasons for this are many and varied, from high house prices to a large foreign population who live in the country on a medium-term basis. 

But for those who are thinking of buying a home in Switzerland – whether on a short or long-term basis, or as an investment – there are several questions to answer. 

Here’s an overview of the biggest issues and questions you should consider when thinking of buying a home in Switzerland. 

Do Swiss really prefer to rent than buy?

Approximately 59 percent of Swiss people rent – making it the highest percentage of renters anywhere in Europe. 

One misnomer in considering renting and buying is that in many cases people in Switzerland and other parts of Europe where rental rates are higher is that they “prefer” to rent. 

Successive studies have shown that high numbers – i.e. above 80 percent – of people would prefer to own their own home rather than rent. 

The high percentage of renters is instead probably more accurately described as people being ‘content to rent’, rather than actually preferring it.

Another factor is the number of foreigners who are only in Switzerland for the medium term. 

Around one quarter of the Swiss resident population is foreign. 

While it is difficult to determine how many of those do not see themselves staying long term, Switzerland’s strong employment sector and difficult naturalisation processes often act as a barrier to settling. 

COMPARE: Which European countries have the toughest rules for gaining citizenship?

With buying a home seen as a major sign of a long-term commitment, it is clear that this plays a role. 

Is buying a home in Switzerland a good decision?

Whether buying a home in Switzerland or anywhere is right for you will depend on your specific circumstances. 

One surprise for new arrivals – particularly those from English speaking countries – is the strength of tenants rights protection laws in Switzerland. 

In Switzerland, tenants are typically given long-term leases with significant permission to change and alter aspects of the house or apartment. 

There are also restrictions on rent increases in some parts of the country. 

READ MORE: What are The Local Switzerland’s reader questions?

Tax is another factor which can discourage people from purchasing a home. 

Despite its reputation, Switzerland’s income tax rates are not as high as some might expect. Other taxes are however quite high in comparison – and contribute to the Swiss being more content to rent than people in other countries. 

Some cantons allow rent to be deducted from tax, while cantons also provide subsidies for renters in some situations. 

Researchers Bourassa and Hoesli write that “income tax rules in Switzerland seem less favourable to home ownership” than those in the United States and elsewhere. 

This sometimes amounts to a high percentage of the overall cost (i.e. as high as 3.4 percent in Geneva). 

Swiss home owners on the other hand are often hit with taxes, including income tax, property tax and capital gains tax. 

Several Swiss cantons also levy a wealth tax, which disproportionately hits home owners. 

Will anything change in the future? 

One important factor to consider is whether you are buying a home purely as an investment, or whether you intend to live there. 

A consequence of the stronger tenancy laws and lower rates of home ownership is that property becomes a less attractive option for investors, which in turn means fewer properties are built. 

But while Switzerland may not be a property investor paradise, buying a home can still be a good investment in comparison to renting, as investing is not the sole purpose of the purchase. 

Recent interest rate rises haven’t quelled rising demand for properties, nor has the impact of the pandemic. 

Speaking with Swiss news organisation Tamedia, property expert Patrick Schnorf said demand is set to continue. 

“We assume that due to immigration, high birth rates and household divisions, demand will remain the same in the near future,” Schnorf said. 

“People have saved a lot (during the Covid pandemic), many have a secure income, these are the driving factors.”

In fact, the Covid pandemic has not dampened demand, but has channeled it towards a different type of property. 

Larger properties with more rooms and gardens have seen greater demand as a consequence of lockdowns and working from home requirements 

“The radius of the real estate search has therefore also extended to the surrounding rural regions,” explained Schnorf.

READ MORE: What does the coronavirus mean for Switzerland’s property market?

While lockdowns look to be over and the working from home rules have come to an end, experts argue that some of these changes are more than mere trends and are likely to be permanent.

Think we’ve missed something? Got something to add? Have you bought a place in Switzerland or are you thinking about it? Get in touch at [email protected].

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For members

ECONOMY

How the strengths and weaknesses of the Swiss economy will impact you

While the economies of many countries are struggling, Switzerland’s is doing well in comparison. What exactly are its strengths and weaknesses? And how will they impact you?

How the strengths and weaknesses of the Swiss economy will impact you

In its new analysis published on Tuesday, the Swiss Economic Institute (KOF) lays out the forecast for Switzerland’s economy.

Some of it is positive, and some less so.

On the whole, however, and given the difficult situation of the past two years, the outlook is promising (read more about this below).

Things are not always what they seem

Economists, like KOF’s director Jan-Egbert Sturm, point out that though the public’s perception of the current economic situation is skewed toward the negative, it is not necessarily so.

“The increase in prices in Switzerland was significantly lower than in neighbouring countries,” he said in an interview with Blick newspaper. 

So is inflation: even at its height in 2022, when it exceeded the 3-percent mark (a very high figure for Switzerland), it was still well below the EU average.

Today, the rate stands at below 2 percent — still lower than elsewhere in Europe

READ ALSO: Why Switzerland’s inflation rate has stayed low compared to elsewhere

 Another ‘misconception’ is that consumption habits in Switzerland have been impacted by inflation.

The general view is that “there is some reluctance to buy new, larger goods like washing machines or cars. But if we look at the figures closely, we see that consumption is evolving in a relatively stable manner,” Sturm said.

“The Swiss economy is generally quite solid,” he added.

Another plus: “the labour market remains robust, especially thanks to the services sector,” Sturm pointed out.

Companies are more reluctant to let employees go not only because there are not enough qualified workers to fill job vacancies, but also because employers “learned during the pandemic that they must be careful not to lay off workers too quickly,” so as not to create shortages when the crisis passes.  

Why does Swiss economy generally fare well in crises — and in general?

There are several reasons for that: 

Low unemployment / high employment

This dynamic fuels economic prosperity because it means that as people earn income, they not only spend more (thus boosting consumption), but they also pay taxes which fill up the government’s coffers.

And when that happens, everyone in Switzerland benefits: the cantons and their finances profit from the strength of the Swiss economy, as the federal government distributes some of its profits to cantons.

The government’s role

The Swiss are financially-savvy, which bodes well for the economy.

Take the debt brake, for instance.

According to the government, it is a mechanism designed to “prevent chronic deficits and keep federal debt from soaring”.

Just as it is for private spending, the government must be careful not to exceed the set ‘expenditure ceiling.’

“With a debt ratio of around 30 percent of gross domestic product, Switzerland remains in excellent shape by international standards,” the government pointed out. “The debt brake has not only significantly helped Switzerland to overcome multiple crises relatively well; it has also allowed for a considerable reduction in federal debt.”

According to the Organisation for Economic Cooperation and Development (OECD), “Switzerland’s public finances rank amongst the best in terms of solidity.”

READ ALSO : What is Switzerland’s debt brake and how does it affect residents?

All these factors combined have kept Switzerland’s afloat (or at least from drowning) during various global downturns, including the Covid pandemic and Russia’s invasion of Ukraine which sparked spiralling inflation in many places. 

But there are weak points as well

One of them is the strong franc.

Actually, its strength vis-à-vis the euro and US dollar is a double-edged sword.

On the positive side it benefits the import industry and, ultimately, the consumer.

But it is quite the opposite for exports.

Switzerland relies heavily on trade with the EU, mainly Germany, but when the euro is weaker than the franc, Swiss goods are too expensive abroad — especially if countries concerned are in recession and simply can’t afford to buy from Switzerland.

For this reason, Swiss industries that depend on exports, usually feel the ‘crunch’ more than import-based sectors.

Also, the strong franc may very well enable Switzerland-based earners to enjoy numerous stays abroad, but it also makes holidays in Switzerland very pricy for overseas tourists. This, in turn, has a negative effect on the Swiss economy as well.

Therefore, the state of Switzerland’s economy is not entirely in its own hands, but depends on forces beyond its control.

As KOF puts it, “the sluggish global economy is slowing the growth of the Swiss economy” as well.

What can we expect ahead?

This is where the good news comes in.

“Real wage increases are expected following the declines of recent years,” KOF says. “This will boost purchasing power and, together with population growth, should support private consumption.

Therefore, “households’ spending is expected to increase in the coming year. This trend will be supported by a gradual levelling-​off of inflation and a sharper rise in disposable incomes.”

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