Swiss struggle to convert homes into castles

The Swiss property market is slower than in many countries express

Recent calls to introduce tax-free savings systems to help people buy their own property have highlighted the low rate of home ownership in Switzerland.

Just over a third of Swiss homes are owner-occupied with the vast majority rented thanks to a mixture of regulations favouring tenants and the high cost of getting on the property ladder.

Switzerland’s Home Owners’ Association and representatives from canton Basel Country have both set out similar plans to allow people to save towards buying a property using special accounts that come with tax privileges.

The association’s scheme proposes annual tax-free savings of up to SFr10,000 ($8,200) per person.

The Basel Country initiative is even more generous, allowing savers to accumulate SFr15,000 for up to ten years and existing homeowners SFr5,000 to make environmentally-friendly modifications to their property.

Three quarters of Swiss people dream of owning a property but most cannot afford the 20 per cent deposit demanded by lenders, according to a survey conducted by the Bern-based gfs Institute at the end of last year.

A combination of other factors also makes home ownership less attractive in Switzerland compared with other countries, according to association spokesman Patrick Zadrazil.

“We have high quality rental accommodation, strong laws that protect the rights of tenants and for most people buying is out of reach financially, particularly in cities where prices are high,” he told swissinfo.

“We want to change the mentality of people in Switzerland towards ownership. The government is not doing enough at the moment to create the right environment to buy.”

Home ownership tax

The Home Owners’ Association is particularly opposed to a form of home ownership tax that adds the notional rental value of a purchased property to the owner’s income tax bill, whether it is being let out or not. This can be offset against the outstanding mortgage interest payments thus removing the incentive to pay off the debt.

The association wants pensioners to be exempt from the tax policy that dates back to 1940.

“We think it’s meaningful to pay off your mortgage so that when you are 80 you are a full owner and not in a situation where the bank still owns 60 per cent of your home. We want to allow people to pay off their mortgage without being punished by the state,” Zadrazil said.

François Micheloud, a partner at Micheloud and Cie relocation firm, told swissinfo that many people have difficulty understanding the concept behind the tax.

“This is really crazy because the whole idea is to make it less attractive to be a homeowner,” he said. “You have loads of rules in Switzerland that make it easy for the tenant and comparatively harder for the owner.”

However, Ernst Hauri, vice-director at the Federal Housing Office, said the home ownership situation in Switzerland is more positive than sometimes portrayed.

He believes the rate of home ownership will increase to 39 per cent by the end of this year and would be even higher if Switzerland’s 20 per cent foreign population, who tend to rent, is stripped out of the equation.

Hauri admitted that there might be a case for allowing pensioners exemption from home ownership tax, but dismissed the tax free savings plan as people are already allowed to use their annual tax-free voluntary pension scheme (just over SFr6,000 a year) to buy property.

“It is not necessary, the pension scheme provision is adequate,” he told swissinfo.

swissinfo, Matthew Allen

Key facts

The Basel Country savings scheme has been in place for some years and continues to operate despite being outlawed by the Swiss Tax Harmonisation Act that came into force in 2001.
Basel Country has added the environmental tax free savings proposal to the scheme and proposes that each canton would be free to choose whether to implement it. HEV, in contrast, wants its plan to be compulsory on a cantonal and federal level.
A comparatively low interest rate – the current benchmark rate is between 1.75% and 2.75%, aiming for a midpoint of 2.25% – makes mortgage debt less of a burden than in many other countries.
Property price inflation is kept in check by financial penalties imposed on people buying and selling quickly to make a fast buck.

In brief

Switzerland has one of the lowest homeownership rates in the developed world.

Figures from 2000 show only 34.6% of Swiss owned their own property (31% in 1990) compared with 45% in Germany, 54% in France, 69% in Britain and the US, and 81% in Spain.

On a cantonal level, Valais has the highest proportion of homeowners at over 60%, followed by Appenzell Inner Rhodes at 57%. At the other end of the scale just 12% of people in Basel City own their property followed by 15% in Geneva.