Real Estate Laws & Regulations in Switzerland
Although buying a home in Switzerland can be complicated, it’s certainly possible. However, first you must understand how the highly regulated market works.
In this article we explain in detail how the regulatory landscape of real estate ownership and transfer of ownership works in Switzerland. There are a few hoops that you will need to jump through when you are purchasing a property in Switzerland, as well as many requirements you will need to meet.
However, although it is complicated, the system works well, it functions like a well-oiled machine. In fact, according to the Real Estate Law Review, Swiss property law has not undergone any major changes since 1907 — which is a testament to the efficiency and clarity of the system.
The key is to understand how all of the pieces fit together, so that you can be sure you are adhering to the laws and regulations when purchasing your property.
So, let’s delve into some of the commonly asked questions about laws and regulations that might come up when purchasing a property in Switzerland.
Is a Foreigner allowed to buy or invest in Property in Switzerland?
Switzerland has a lot of strict regulations when it comes to purchasing property. It also distinguishes between several different types of foreigners, depending on your residence permit and nationality. The fundamental basis is the Federal Swiss Act concerning the Acquisition of Real Estate by Persons Abroad (in German: Bundesgesetz über den Erwerb von Grundstücken durch Personen im Ausland — “BewG”).
In here you will find that you will be allowed to buy any kind and amount of property if you have a residence permit B (for EU/EFTA nationalities) or a permanent residency (permit C) (for all other nationalities). The permit C is a permanent residency permit that is usually given to people who have been in Switzerland for at least 5 years (depending on the canton you live in).
The most important fact is that if you:
- are an EU or EFTA national with a residence permit B residing in Switzerland OR
- are any other national and you have a permanent residency (permit C)
you’ll have the same rights as a Swiss citizen to purchase property, so you can buy investment properties, business premises or a holiday home, in addition to a primary residence.
If you have a residence permit B but you are not a EU/EFTA resident, you will be allowed to purchase one property — but only to live in and further conditions may apply.
You will be able to purchase commercial property (i.e. a hotel) even if you are a resident abroad, without any restriction. This property may be rented or used for an activity. When it comes to commercial property, there are no restrictions on the geographical location or the number of properties that you can purchase.
What Different Types of Real Estate Ownership Are There?
There are several different types of real estate ownership under Swiss law, but the most common forms are co-ownership and sole-ownership.
The most standard form of ownership is land ownership, which includes ownership of land and all of its parts, such as any buildings constructed on the plot. However, it is also possible to own land on a ground lease ownership principle which will enable the owner of the plot to dissociate ownership of the ground from ownership of the buildings on that plot.
Condominiums (Stockwerkeigentum) are a common form of co-ownership in Switzerland, where several people own separate units in a property. In this situation, the co-owner has the right to make use of their own specific part of the building and design the interior of their own condo.
Also, the owner of each condominium will be allowed to use, manage and design their own condo, but they may not prevent any other condominium owners from exercising their own rights.
When it comes to the Swiss Land Registry, each condo unit has a separate folio and can be sold separately, with (usually) no need to get permission from any of the other condominium owners.
What Are The Requirements for Obtaining a Mortgage?
Non-Swiss residents are in general able to get a mortgage for between 60–80% of the house price or the bank-appraised value (whichever is lower) depending on their credit score (in German: Tragbarkeit). There are many different types of mortgages available, including variable rate, fixed rate, capped-rate, bridging loans and more.
Swiss mortgages are interesting, as they are often divided into two mortgages. The first mortgage will cover up to 60–70 percent of the purchase price and could have an indefinite payment period.
Then, the second mortgage will usually cover the gap between the deposit and the first mortgage. So, for example if the first mortgage is for 65%, the deposit is 20%, the second mortgage will be for the remaining 15%. This mortgage will have a fixed repayment period and it will have a higher interest rate, usually 1% higher than the first mortgage.
In order to qualify for a Swiss mortgage, you will need to be living in Switzerland with the right residency permit. (That’s a B permit for those from EU/EFTA countries and a C permit for non-EU/EFTA countries, as explained in a previous section).
Also, when you obtain a mortgage in Switzerland the lender will typically require you to show that your monthly income is at least three times what would be required to repay the loan. Often, the Swiss Bank will include a general higher interest rate (i.e. currently 5% although the market is around 1%), insurance and maintenance charges in this calculation, so this means that the income requirement may be higher than elsewhere (Mortage Calculator).
You’ll need to arrange the loan directly with the bank itself, contact them directly and requesting information on rates and paperwork. Most of the cantons have their own canton-specific bank but there are also nationwide banks (i.e. the UBS or Credit Suisse).
What Does a Typical Sales Contract Look Like?
When you enter into a contract to purchase your own home, it must be officially signed by a notary before it will be considered valid. In some cantons, there will be official notaries that you must use. In this case, you will need to visit the relevant office of the official notary.
However, in other cantons you will be allowed to choose your own notary, as they operate in private practice. Although you choose your notary in this case, they will be legally required to remain neutral between both parties.
A typical sales contract in Switzerland will be signed by all of the parties involved in the sale, the notary, the seller and the purchaser. However, if you are purchasing a property you won’t officially become the owner until you are entered into the Land Register’s diary (from the diary it will be eventually mutated into the Land Register).
The sales agreement will guarantee that the buyer will not sell the property to anyone else. You will also need to pay a deposit of 10% of the property value to show the buyer your intent to purchase. If you are a not living in Switzerland (non-resident), this sales contract is conditional upon receiving the permission from authorities to proceed with the sale. (sometimes this can take 2–3 months).
If the permit from the authorities is not approved, the property will go back on the market and your deposit will be returned. You will only need to pay the notary charge. If it is approved, you can proceed with the home purchase. Your notary will then create an “act of sale” (also known as a deed) which will be read to both parties. You and the seller will need to sign it, then it will be filed with the land register of the relevant canton.
What is the Lex Koller Law?
The Swiss federal law known as Lex Koller restricts the purchase of real estate for foreigners (living abroad) in Switzerland. Switzerland first started introducing legislation restricting the purchase of real estate by foreign individuals in 1961, as they feared that too many people would come in from other countries and purchase properties. Lex Koller (Koller’s Law) is a federal law (BewG) and it is enforced by each of the cantons themselves.
If you are interested in buying a property as a foreign individual, you must ask for permission from the canton in question. According to the Lex Koller Law, a “foreign individual” is defined as someone from outside the EU/EFTA who doesn’t hold a valid residence permit, or EU/EFTA citizens who don’t have a valid residence permit.
Foreign individuals are restricted from buying land for development or non-commercial real estate for investment purposes (i.e. an apartment building). However, the law does allow them to purchase resort property in some cantons in Switzerland, according to local quotas. These resort properties must be used for vacation purposes only and only if the cantons permit it.
In addition, commercial real estate in Switzerland, such as office premises, retail buildings, industrial facilities and hotels can be can be acquired with few (or no) restriction, by citizens of any nationality. The purchaser may purchase in their own name or through a Swiss or foreign legal entity.
The law was named “Lex Koller” after the former Swiss president Arnold Koller, who was a lawyer by profession and initiated the law. It is widely recognized that Lex Koller is very effective in reducing the demand for Swiss residential properties.
If you have been reading about property law in Switzerland, you may have also heard of the Lex Friedrich (Friedrich’s Law). This is the earlier name for the law regulating the purchase of property by foreigners in Switzerland, named after Swiss politician Rudolf Heinrich Friedrich. Lex Koller is the new and updated version of Lex Friedrich.
How Does the Land Registry Work? What is Included?
The Swiss Land Registry is a comprehensive system that contains information about every property in Switzerland. Every privately owned piece of land has its own folio in the land register. The land registry contains detailed information about each property, including ownership, size, a description of the property, easement, charges, mortgages, lien, public law restrictions and more.
When it comes to transferring ownership of a property, the ownership will not be able to be transferred if the purchaser is not entered into the land register. Once your name is included in this official, publicly accessible record, then it’s official!
How Does Passing of Title Work?
As stated above, when it comes to passing of title when purchasing a property, transfer of ownership cannot be completed until the new owner is registered in the Swiss Land Registry.
Also, there must be a notarized agreement between the purchaser and the seller, which will ensure the legal basis for acquisition of ownership. This is the only agreement which grants a right of entry into the land register.
There can sometimes be an exceptional case in which the ownership is acquired via inheritance, transfer in a debt collection or transfer by judgement. In this case, the entry in the land register will only have a declaratory function.
What Down Payment is Typically Required?
When a commercial property purchase is made by a foreigner, a down payment is generally requested at signing and will be held in escrow by the notary. The balance of the purchase is paid at the closer when the transfer of ownership is registered with the land registry.
The down payment is typically 10% of the purchase price in an assets deal. In share deals, there is typically no down payment.
How Do Taxes Work When Buying A Property? Who Needs to Pay Swiss Taxes?
Taxes in Switzerland are levied by 3 different authorities — the municipality, the canton and the confederation. The taxable value of your property will be used as the base when determining your taxable wealth income.
Transfer taxes (or the purchase fee) may apply when purchasing a property, depending on the canton. The rates will range between 1% — 3.3% of the purchase price. The regulations of most cantons are that the buyer must pay them, but most of the time the parties to a real estate purchase will agree to share the real estate transfer taxes.
If anything is gained during the transfer of the property, the seller must pay real estate capital gains tax. How much tax needs to be paid depends on how long the seller has owned the property and also varies based on the canton.
Also, if an individual is using the property as their own residence, they will be annually taxed on the rental income. This is known as imputed rental value. However, it is possible to deduct financing and maintenance costs for the property, which can sometimes outweigh the imputed rental value.
Property tax is calculated on the full taxable value of the property, i.e. without taking account of any related debts or mortgages. The property is taxed at its location irrespective of where the owner lives. Certain cantons (ZH, SZ, GL, ZG, SO, BL und AG) have decided not to levy this tax. The remaining cantons apply a variety of systems.
Understanding Real Estate Laws and Regulations in Switzerland
This was a selection of important facts that you should know when it comes to laws and regulations around real estate in Switzerland. For further information, we recommend you to contact the tax administration or notary in your canton, they are very helpful in answering detail questions about your specific case or future plans.
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