Buying property in Switzerland: the complete guide for 2022

Last year saw house prices rise by more than 5%, and this trend is set to continue in 2022. Now is the perfect time to take the plunge and invest in Swiss property! 

Find out all the key details and stages involved in buying property in Switzerland with our comprehensive guide, whether you are a Swiss citizen, an expatriate or a non-resident.

The distinctive features of the Swiss property market

The Swiss property market

Although it shares similarities with the property markets in neighbouring countries, particularly the French market, the Swiss property market has a number of distinctive features. It is notable in particular for the price of its properties, which is generally relatively high across many of the country’s cantons. 

Thus, the average price of a flat across Switzerland is six times the average annual income of a Swiss household. The ratio is even higher for houses, where average prices are no less than eight times that same annual income!

These figures logically explain another distinctive feature of the Swiss property market: the prevalence of renting. Indeed, nearly 60% of the Swiss population rents their home, and only 34% of Swiss citizens own their main residence (compared with over 50% in France). 

In addition to higher property prices, this situation can be attributed in particular to the fact that the process of buying a home is more complicated than in other countries, as well as to a tax system that favours tenants over homeowners.

Foreign nationals: how to buy property in Switzerland?

Nationals residing in Switzerland

Of course, all Swiss nationals are entitled to purchase property in their own country, whether it be a main residence or a second home. But what about foreign nationals living in Switzerland?

Nationals of countries that are members of the European Union (EU) or the European Free Trade Association (EFTA) have exactly the same rights as Swiss citizens when it comes to purchasing property. In fact, these nationals do not require any special authorisation to buy property in Switzerland.

For nationals of third countries, buying property in Switzerland is a more complicated process. 

In fact, a national with this profile must meet the following three conditions in order to purchase a main residence:

• hold a valid residence permit (usually a B residence permit);
• to live in the property they intend to purchase (provided they are registered as living there);
• in the case of new-build housing, work must begin no later than one year after the purchase of the land.

Once these specific conditions have been met, no authorisation is required to make a purchase.

However, third-country nationals require authorisation to purchase the following types of property (and must therefore apply to a cantonal authority):

• holiday accommodation;
• the accommodation units in an aparthotel;
• holiday homes.

Please note: Foreign nationals who own property in Switzerland are not automatically entitled to a residence permit.

Non-residents in Switzerland

For foreign nationals residing outside Switzerland, regardless of their nationality, the conditions for purchasing property are much more stringent. To find out the details of these restrictions, you will need to contact the relevant cantonal authority, namely the Land Registry Office or the Land Registry Inspectorate.

However, Swiss law is much more flexible when it comes to the purchase of property for commercial purposes (shops, workshops, offices, etc.) by non-resident foreigners. In this specific case, no authorisation is required from the prospective buyer!

Good to know: This is why many non-residents (particularly French nationals) set up a company in Switzerland with the aim of obtaining a residence permit, initially to rent a property, and then to be able to purchase a home after a five-year waiting period. 

Finding and financing a property in Switzerland

Valuation of the property and price negotiation

Although the procedures involved in buying property in Switzerland are often more complex than in other EU countries, the main stages of the purchase process are relatively straightforward to understand.

Once you have chosen the ideal property, you will need to have it valued; this is usually carried out by your bank, or more specifically by your financial advisor, as part of your mortgage application. This is a crucial step, as it is on the basis of this valuation that your bank will decide whether or not to approve your mortgage application and determine the amount of the loan.

As far as negotiation is concerned, you should be aware that it is virtually impossible in the Swiss property market. And with good reason: both sellers and developers are well aware that the number of properties on the market is far below demand. As a result, negotiations are very rare. 

However, they are sometimes an option, particularly when buying an older property, or if you have several purchase options and can therefore play the market against each other – though this is still extremely rare in Switzerland. 

Another potential bargaining chip is your bank’s valuation: if it is lower than the seller’s asking price (and your mortgage application is therefore refused), you can use this as an argument to negotiate a lower price.

So, it is usually the bank’s valuation that will determine the final purchase price of the property you are interested in, unless, of course, the seller is confident they can find a buyer willing to pay a higher price.

Please note: Due to fierce competition among buyers, you may find yourself having to accept a higher price than you had hoped for in order to secure your dream property!

How can you finance a property purchase in Switzerland?

Equity

Specific to the Swiss property market, the issue of equity is a key factor when buying a property. Indeed, to become a homeowner in Switzerland, you will need to contribute at least 20% of the total purchase price of your future home. This sum, also known as the loan-to-value ratio, corresponds to the personal contribution required, for example, in the French market.

Therefore, to purchase a property worth CHF 1,200,000, you will need to provide at least CHF 240,000 of your own funds.

Please note: This rule requiring a minimum of 20% own funds applies in all cantons and at all banks. Without this initial deposit, you will be unable to buy a flat or a house, regardless of your monthly income.

Furthermore, the amount of equity is not the only constraint. This personal contribution must be allocated in a specific manner, namely:

• At least 10% must come from your own funds (savings, life insurance, 3rd pillar pension schemes, etc.);
• 10% must come either from your cash reserves or from your 2nd pillar (LPP).

Good to know: If you are an expat and your personal contribution is not in Swiss francs, we recommend using a service specialising in online currency exchange, such as b-sharpe, which is much cheaper than using a bank!

The debt ratio

In addition to your own funds, your debt-to-income ratio, or borrowing capacity, is a key factor in securing financing for your property purchase. This enables the bank to estimate the maximum amount you are able to borrow (and, of course, repay) based on your annual income.

Good to know: It is advisable to assess your borrowing capacity yourself before approaching the banks, so that you can focus from the outset on properties that fit your personal budget.

Your debt-to-income ratio is therefore calculated based on your future monthly mortgage repayments and your income. At most Swiss banks, the total costs associated with purchasing your property (mortgage repayments, maintenance costs) must not exceed 33% of your gross annual income. This calculation takes into account any existing financial commitments (other loans, leases, etc.).

The mortgage

A mortgage is central to financing the purchase of a property in Switzerland; it represents the amount your bank is likely to lend you, provided you meet the criteria outlined above (own funds and borrowing capacity), to enable you to buy your home.

As you will have realised, the amount of your mortgage can only be up to 80% of the total purchase price of your future property; this percentage corresponds to the loan-to-value ratio.

The amount lent by your bank is divided into two separate parts, as follows:

• the first mortgage, which covers between 0% and 65% of the property’s value;
• the second mortgage, which covers between 65% and 80% of the property’s value.

This is another distinctive feature of the property purchase process in Switzerland: whereas in France or Spain the buyer must repay the full amount borrowed by a set deadline, in Switzerland the buyer is only required to repay the second mortgage.

In fact, the first mortgage is interest-only: the borrower pays only the interest and continues to owe the bank the outstanding balance. The second mortgage, on the other hand, is repayable: the borrower repays both the capital and the interest. This system, which is specific to Switzerland, thus allows borrowers to benefit from a tax reduction, as the interest is tax-deductible.

In a typical scenario, the financing of your property purchase is therefore structured as follows:

• 20% equity;
• 15% mortgage (second mortgage)
• 65% mortgage (first mortgage)

The process of buying a property in Switzerland

Dealing with the solicitor

Once you’ve found the right property at a price you’re happy with, and once you’ve secured your mortgage, you’ll still need to finalise the purchase with a solicitor.

In most cases, it is the buyer who chooses the solicitor to handle the legal formalities of the transaction. This is a crucial step, as without the notarisation process, the property transaction will not be legally valid and your purchase will be invalid.

Firstly, your solicitor will draw up a sale agreement, which you will need to sign with the seller. This agreement ‘locks in’ the property, thereby preventing the seller from selling it to anyone else. In exchange for this commitment, you will need to pay a deposit amounting to 10% of the property’s total value. 

Please note: If you are a non-resident, these procedures can only be completed if the relevant cantonal authority has approved the sale process, which generally takes between two and three months. In the event of a refusal, please be aware that your deposit will be refunded, but you will still be required to pay the notary’s fees.

Once these initial procedures have been completed, the solicitor draws up the deed of sale, which must be read and signed by both parties, and then filed by the solicitor with the land registry of the relevant canton. You must then place the remaining 90% of the total purchase price of your future property in escrow with the solicitor.

To finalise the sale, the estate agent transfers the funds held in escrow to the seller and transfers ownership of the property to you; you will then receive, usually within a fortnight, an extract from the land register confirming that the property is now indeed yours.

Swiss property taxation

Property tax

Another important factor to bear in mind when buying property is taxation. Switzerland has certain specific features in this regard that it is worth being aware of before purchasing a home in the country.

Firstly, you should be aware that Swiss property owners are liable for property tax. The rate is capped at 3%. Swiss property tax is levied annually and is calculated on the basis of the market value of the property, which is determined by supply and demand in the Swiss market.

However, this tax is not levied in a number of cantons, including:

• Zurich;
• Schwyz;
• Zug;
• Solothurn;
• Basel-Landschaft;
• Glarus;
• Neuchâtel;
• Aargau. 

Property wealth tax

Unlike property tax, Swiss real estate wealth tax is calculated on the basis of the property’s tax value, rather than its market value. Consequently, any interest paid to your bank will be deducted from the property’s taxable value.

Good to know: The rate of Swiss property wealth tax varies from canton to canton. 

Tax on the rental value

Undoubtedly the tax most specific to Switzerland, the tax on imputed rental income is generally poorly understood by foreigners. It is a tax based on the income a property owner could derive from letting their property.

Thus, the tax on rental value is in fact an income tax based on the rental value of the property. This is because Swiss law considers that a property owner theoretically benefits from additional income, given that they do not pay rent.

Good to know: As the tax on the rental value is calculated based on the proportion of the property actually owned by the owner, the higher the capital repayment chosen as part of their mortgage, the higher the amount of this tax. 

Additional costs associated with buying a property in Switzerland

In addition to the various taxes that the new owner of a property must pay in Switzerland, there are other costs to take into account, namely:

• notary fees, which generally amount to between 0.02% and 1% of the total purchase price;
• registration fees, which generally amount to between 1% and 1.5% of the total purchase price, depending on the canton;
• property transfer duties, which generally amount to 4% of the total purchase price, although they vary by canton (they have, for example, been abolished in Zurich);
• Value Added Tax (VAT), which is generally 7.6%, although this also varies from canton to canton.

High prices, the need for equity, mortgages… There are many unique features of the Swiss property market. Whether you are a Swiss citizen, an expatriate or a non-resident, you now understand how it all works and are in a position to successfully complete your property purchase with complete peace of mind.

If you’re an expat, you’ll need to convert your currency into Swiss francs during the purchasing process. That’s good news: b-sharpe is the leading online currency exchange service and offers you a cost-effective and secure service!