Photo: swiss-image.ch/Regis Colombo Can the Lake Geneva region’s real estate market be considered an exception to the rule? This particular market was not only spared the property crisis that hit the United States, Great Britain and Spain but values have unremittingly risen in the most spectacular manner. Price padding is so rampant that even Moody’s is growing worried. On November 16, the ratings agency revised Raiffeisen Bank’s rating by lowering it due to the group’s banks’ exposure to the mortgage market. Talk of a real estate bubble and a dramatic dip in the market is rife whereas others evoke a high value price stabilisation. So what’s the story? According to figures supplied by Credit Suisse, a mid-range PPE (property by storey) apartment in Geneva priced at approximately CHF 500,000 per 100 sq. metre in 2005 had shot up to CHF 1 million in 2010 and everything indicates that real estate values will go on climbing.
The Notre-Dame du Lac real estate project on Geneva’s Cologny inlet went on the market in June, 2011 at asking prices ranging from CHF 25,000 to CHF 29,000 per square metre. In other words, nearly CHF 3 million for 100 square metres of living space. However, the fact that the properties are town houses – currently the most desirable type of housing in Geneva – must be taken into consideration. Prestigious, luxury residences are the area concerned here. “The average prices run from about CHF 9,000 to 10,000 per sq. metre”, stated Naef Immobilier’s Administrator and General Director, Etienne Nagy, who runs the largest real estate agency in French-speaking Switzerland. It’s mostly the current trend that’s alarming. According to figures released by the CIFI in Zurich, the cost of buying a villa in Geneva jumped from CHF 1.5 million to nearly 4 million between 2004 and 2011 – or a price hike of over 100%. This price explosion is not representative of how the market has evolved in the rest of Switzerland, where costs have only gone up 16% in Bern and 20.5 % in Zurich during the same period of time. Over the past 10 years, the Lake Geneva region’s real estate market has undeniably proven to be an anomaly in terms of property costs. According to data compiled by Wьest & Partner in its “Immo- Monitoring” (2011/#2), the market value for a detached house in the area hit CHF 1.45 million in 2010, approximately twice the national average of CHF 790,000. The spike in price is a bit less marked in PPEs, which fetch CHF 800,000 as opposed to Switzerland’s CHF 600,000 national average.
It’s worthwhile to compare the Lake Geneva region with Zurich, where a house costs CHF 1 million and an apartment goes for CHF 750,000. As of now, properties in Zurich are actually less expensive than in the Lake Geneva region and in so far as Geneva Canton is concerned, real estate values there are truly an anomalous exception to the rule. This doubly exceptional situation is greatly due to the great attraction the region holds for ex-pats, whether they come for professional reasons or to take advantage of the area’s lump-sum taxation policy. “Between 30% and 40% of real estate transactions are cases of foreigners moving to the region”, explained Etienne Nagy. “It’s a hoover that pulls the prices up”, affirmed Claude Hababou, an independent real estate agent in Geneva. Lump sum taxation is a unique particularity of Swiss law which allows wealthy foreigners with no lucrative activity to become Swiss residents and only be taxed on their expenses within Switzerland rather than on their world wide income. In practise, the Swiss administration particularly examines the beneficiaries’ housing expenses, which are required to be in a high price bracket. Geneva Canton’s 700 lump sum taxation beneficiaries are therefore encouraged to find comfortable lodgings, resulting in a rise in real estate prices.
Zurich, however, counted no more than 200 lump sum taxation beneficiaries and the status was abolished there in 2010 – something which is not going to happen in the Lake Geneva region any time soon. To cite a case in point, an initiative led by the Left in Vaud Canton to abolish fiscal advantage status did not even make it to popular vote as it was unable to gather the required number of signatures. Any similar project has practically no hope of passing in Geneva, if only for the estimated CHF 60 million Geneva’s cantonal budget would lose in revenue – a budget which is far less stable than Zurich Canton’s finances. Lump sum taxation is not limited to the Lake Geneva region and real estate in the mountains is likewise concerned. There are some 1,150 lump sum taxation beneficiaries in Valais Canton alone. “There are 40 to 50 new arrivals every year”, noted former Swiss National Council member Paul-Andrй Roux, who is well informed on the matter as his fiscal consultancy office handles approximately 20% of the new lump sum taxation beneficiaries coming into the canton. Over 80% of the Valais’ tax package beneficiaries are Western Europeans – primarily French, British, Belgian, Dutch and Scandinavian.
However, Valais has a distinct advantage over Geneva for non-Europeans as it’s still possible for a non-resident to purchase residential real estate there, due to an exception to the Koller Law which is still possible to apply in Valais. In principle, the Koller Law has barred non-residents from purchasing residential properties for decades but it allows for exceptions. On the one hand, the Koller Law was relaxed in 1999 in order to open the commercial real estate market to foreign investors. The move resulted in such a dramatic price hike that the cost of a store front in Geneva’s city centre is prohibitive for most retailers and luxury brands are practically the only businesses capable of affording such commercial properties. Foreign investors have turned their attention back to real estate in the mountains, exemplified by the 2,500 guest capacity hotel project which should soon be built on a 70,000 sq. metre plot in Aminona. This project could begin construction as early as 2012 and building work is planned to extend over a 3- year period at an estimated cost of CHF 600 million. The Aminona project would be the second largest tourist and real estate venture being worked on in Switzerland, just behind the Andermatt project. The Aminona project is being financed by European companies owned by Russian shareholders who are represented by Aminona Luxury Resort and Village SA, administrated by Paul-Andrй Roux.
One of the Swiss real estate market’s paradoxes is that property prices in the mountains often exceed those in urban areas – Geneva being one of the rare exceptions to the rule. This phenomenon can be attributed to the Koller Law that allows foreigners to buy a secondary residence, often as an investment. How else can one explain that a chalet in Gstaad was sold for CHF 100 million 2 years ago? In Geneva, properties that foreign buyers are most drawn to generally sell for over CHF 15 million. The situation could get even worse should the Koller Law – which opened the residential real estate market to non-resident foreign investors – be completely abolished. Astute real estate professionals like Claude Hababou do not care to entertain the possibility, although it almost happened in late 2007 when a project designed to do so was halted in extremis by a parliamentary commission. Yet the issue of abolishing the Koller Law has become the subject of debate yet again and will probably end up passing by necessity. “The issue of abridging this law has gone on for nearly 10 years”, was the philosophical statement made by Comptoir Immobilier’s president, Paul Epiney, who prefers to focus on the market’s routine operation. He remarked that there are some communities in Geneva, such as Satigny, where one can acquire a PPE at between CHF 7,000 and CHF 8,000 per square metre. Mr. Epiney is also active in Vaud Canton’s real estate market and is quick to cite properties in the Vaudois countryside that sold in the CHF 500,000 price range, although he conceded that the Lake Geneva region entails prices ranging from CHF 1 to 2 million.
A few years ago, a Lausanne-based architect stated that, “a lake view increases values by 50%”. Given the current market conditions, he could now affirm that lake views double the price tag. In spite of this, real estate professionals refuse to speak of a ‘speculation bubble’, although some figures could lead one to believe it already exists. Paul Epiney cites the plots in Cologny as a case in point as the land currently costs between CHF 4,000 and CHF 10,000 per square metre – well over the past ‘peaks’ of CHF 1000 to CHF 1,200 per square metre when prices were driven up by the period of speculation in 1988- 1989. That real estate boom was definitely a prelude to the serious crisis which ensued from 1990-1995, but the shift was engendered by the extremely high mortgage rates of 6% at that time – well above the average 4.5% of the past 2 decades. Property buyers currently have the option to choose financing at 3% over a 10 year period. Hence should a hypothetical rate increase occur, it would only effect the situation in the long term as 80% of mortgage holders are locked in at fixed rates over a 5 to 10 year period. In order to have a real impact on the market, mortgage rates should be brought up to over 5%. The vast majority of banks avoid granting loans to candidates who would be unable to afford an increase of at least an additional 2%. Given the situation, one is inevitably drawn to acquiring real estate in a country where only 20% to 25% of the population are property owners... However, rents have followed the pattern set by spiking property values to such an extent that it’s become more advantageous to purchase one’s apartment than to rent - even if the apartment costs CHF 1 million.
The figures are a quick study; if renting a 2 bedroom flat costs CHF 3,000 per month – that is if one can even find such a rental property – the mortgage fees and general costs a CHF 800,000 property loan entail don’t exceed CHF 2,500 per month. Obviously, almost all banks require a total of CHF 200,000 in personal assets but that’s not above the financial means of the targeted population segment – the upper middle class. In order to acquire an apartment worth CHF 1 million, a couple should have an annual income of at least CHF 170,000. Despite elements of this kind in place to support the real estate market, the rise in prices has tended to slow down – and even stabilise – in 2011, according to Etienne Nagy. However, Mr. Nagy doesn’t foresee the real estate bubble explosion as being a risk in the Lake Geneva region’s property market. The director of French-speaking Switzerland’s largest real estate agency believes that market prices will stabilise at high values. Despite the fact that this stabilisation has become reality for most of the market, luxury properties continue to be exceptions to the rule – particularly in the most prestigious locations.
Denis Burrus, specialised in luxury properties at Burrus & Partner in Gstaad, explains that such is the case in Saanenland. “I was expecting a disappointing Fall season in July but it has been even better than last Spring”, reveals Mr. Burrus. Rich foreigners – including Greeks but also some ex-pats based in London – continue to buy despite the fact that prices have literally exploded since the middle of the past decade. The asking price for a luxurious chalet that would have cost CHF 10 million in 2005 has since shot up to between CHF 15 and 40 million. “One can only find small chalets in the CHF 10 million price range now. The large ones go for CHF 40 million”, explained Denis Burrus. But beware, these prices are only valid in Saanenland. Some 20 kilometres down the road in Château-d’Oex, prices are incomparable and there are numerous properties on the market. Given the context, should the price drop that some have been predicting since 2008 come to pass, it is none the less doubtful that it would affect prestige real estate prices. In Geneva, any price drop will be minimal due to the scarcity of available land and demographic pressure. It may well be in the cards to progressively de-zone some 10,000 odd sq. metres of agricultural land but that process will take up to 20 years and nothing less than a major economic crisis could seriously bring prices down – and then costs would only be affected for a few short years before they shoot back up again...
