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Homeowners saddled with high debts




Switzerland has one of the lowest home ownership rates in the developed world and those who do buy are saddled with the highest mortgage debts, according to experts.

This surprising combination springs from the high cost of housing coupled with a tax regime that discourages capital repayments, the Swiss Home Owners' Association complained on Tuesday.

As a result, only 37 per cent of Swiss own residential property despite some three quarters saying they would like to do so.

Many are put off by a combination of high prices, the requirement of raising a 20 per cent deposit, favourable conditions for renters and a housing market collapse in the 1990s that cost people their homes and banks SFr42 billion through defaults.

The association was most concerned that out of SFr1,950 billion ($1,770 billion) people had invested in the Swiss housing market, around a third (SFr650 billion) was in the form of mortgage debt. This was the highest figure per head of population in the world, the association claimed.

The principal cause has been blamed on a special home ownership levy that adds the notional rental value of the property to the owner's taxable income. This can be offset by mortgage interest payments, taking away the incentive to pay off the loan.

A parliamentary motion was launched last September to abolish the tax for retired people, but previous attempts to change the law were rejected by referendums in 1993 and 2004.

Construction boom to end

Opponents, including the centre-left Social Democrats, say it would be a tax break for the wealthy as people on modest incomes cannot afford to buy. According to data from Swiss bank Credit Suisse, a single-family dwelling in 2007 cost eight times the average household income, compared with a factor of 5.5 in Britain.

However, despite these barriers, a rising population and favourable economic conditions have seen a rise in demand for home ownership. Credit Suisse predicts demand for more than 40,000 new homes per year until 2010, while the rate of home ownership has risen from 31 per cent in 1990.

As a result, the construction industry has been booming in the last decade, with more homes being built than at any time since the last peak in the mid-1980s.

Demand is expected to tail off this year with a downturn in the economy, but experts predict a soft landing compared with the problems in the United States. The number of empty properties is not expected to rise much higher than the 2007 rate of 1.06 per cent.

Last month, Credit Suisse real estate analyst Fredy Hasenmaile told swissinfo that a return to the boom and bust situation of the 1980s and 1990s was not likely in Switzerland.

"We have no subprime mortgage market to speak of here and financial institutions have adopted tougher risk management procedures since the 1990s. The problems of 15 years ago were created by an overheated economy, a lot of speculation in the housing market and a dramatic rise in interest rates," he said.

swissinfo, Matthew Allen with agencies

Key facts

Switzerland is not a country of homeowners, with the rate of ownership rising from just 31% in 1990 to around 37% at present.
The 34.6% Swiss home ownership rate in 2000 compared with 45% in Germany, 54% in France, 69% in Britain and the US, and 81% in Spain.
About 47,000 homes were built in 2005 and 42,000 in 2006. Figures are not yet out for last year, but they are expected to be moderately higher than 2006 with 40,000 new homes forecast for 2008.

In brief

A 2006 study by Geneva University and Louisville University in the United States estimated the impact of various changes in the Swiss housing market on home ownership.

It concluded that abolishing the home owners' tax while retaining tax deductible expenses, such as mortgage repayments, would boost the ownership rate by 8.5%. Scrapping both elements, however, would reduce the rate by 2.5% because the tax breaks usually exceed the value of the levy.

Reducing the deposit to 10% would induce another 2% of the population to buy a home. But this would be boosted to 5% if banks also allowed mortgage debt to reach 40% of household income compared with the current "golden rule" of 33%.

If conditions totally matched those in the US, about 64.5% of Swiss would jump at the chance of buying their own homes, the report concludes.



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