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Acquisition of Real Estate in Switzerland (Lex Koller law)

Acquisition of Real Estate in Switzerland

Each year, more and more people become interested in Switzerland, which for various reasons attracts the attention of foreigners either for business establishment or private purposes (housing purchase for a living). Nevertheless, the Swiss Real Estate market exhibits a few remarkable characteristics.

The legal requirements and restrictions

To begin with, the Swiss Real Estate market has a high degree of protectionism. The Federal Law on the Acquisition of Real Property by Persons Abroad (referred to as the Lex Koller legislation) has established a reasonable restrictive impact on acquisition of properties by persons residing abroad. Under aforesaid law, those who are not citizens of the European Union (EU) or their countries are not the part of the European Free Trade Association (EFTA) and who do not own the Swiss permanent residence (permit C) as well as citizens of the EU and EFTA who do not have a residence permit (permit B) in Switzerland, will be considered as a residing abroad person. One should note that the acquisition of real property and the acquisition of shares in companies or business owning real property require authorization from the cantonal authorities, unless this property will be used as a permanent establishment for the active business.

In practice, in case of a share purchase in the company which owns real property and does not use it for the business purposes, Lex Koller will be applied when the acquirer is – a residing abroad person, a foreign company or a Swiss company controlled by a person who is resided abroad. Also, this law applies to the cases when the market value of the real estate is higher than a ‘certain percentage’ of the market value of the overall amount of the company assets. Unfortunately, there is no clarification to the amount of that percentage, but it could be stated that the sum should be higher than 50% of the total amount of the company assets.

It is important to ensure that your business is functioning in compliance with the rules and the obligation stated in the Lex Koller legislation due to the fact that any purchase made without appropriate compliance to the Swiss law requirements will be null and void.

From the above-mentioned, it should be clear that you will be allowed to buy any type and amount of property in Switzerland if you own a B residence permit (exclusively for the EU/EFTA nationals) or a C Swiss permanent residency (for other nationals) which can be given for those who have been in Switzerland for not least than 5 years with additional requirements, depending on the canton you live in. With the B or C permit, you will obtain the same rights as a Swiss citizen to purchase a property.
As for the commercial property, there are no restrictions on the geographical location or the number of properties that you can purchase even if you are a resident abroad excluding any usage of company property for the personal benefit and interests.

The Price Bubble

Almost, each and every developed country, at least once, has suffered from the Real Estate Bubble that has moved both cheap and normal prices of property to extremely high prices in a relatively short period of time. The most common causes are: low-interest rates which create an over-expansion of the money supply; demand-pull inflation, created through asset price rise due to the sudden popularity of such a business; and a supply shortage connected with a panic purchase of the property before it will run out. Generally, these causes can appear after legislative reforms, accessible technological innovations or/and favourable conditions for the business establishment.

At the end of September 2018, the UBS Bank has published its report about the Real Estate Bubble Index (the UBS Report) around the Globe which provides a clear indication of price-to-income levels. For instance, in Zurich, the Real Estate price is almost as twice more expensive than in Geneva, which shows that the skilled service worker who lives in Zurich and earns higher than average salary will be required to work for 5-7 years in order to buy a personal apartment while in Geneva he will need a twice less time. In addition, the UBS Report has shown that Zurich is one of the most expensive cities for apartment renting due to the fact that one will spend 34-38 years to raise enough money for the purchase of the personal apartment.
The above-mentioned UBS Report has shown up that the Swiss Real Estate is more accessible for purchase rather than for rent, however, the prices have always been very high in Switzerland. Nevertheless, there are no legal restrictions or special requirements concerning rental opportunities in Switzerland, in contrast, to the purchase of Real Estate.

Conclusion

The Lex Koller legislation has protected Switzerland from the uncontrolled Real Estate ownership by the abroad residents. At the same time such mechanism has created disbalance in the opportunities to buy the property between the EU/EFTA citizens and citizens of the Third Countries. Nevertheless, there is no disbalance in case of commercial property purchase. As for the prices, there are 26 cantons in Switzerland where you can establish your business and purchase the Real Estate for acceptable price basing on your personal needs and understanding of your business.

Our services

Of course, our company can fully assist you with your business establishment in Switzerland and provide you with an appropriate legal consultation/opinion regarding your questions or concerns.

 

Victor Poternak
Associate
Goldblum and Partners

 

[1]L’Assemblée fédérale de la Confédération suisse, “Loi fédérale sur l’acquisition d’immeubles par des personnes à l’étranger”, du 16 décembre 1983 (Etat le 1er mars 2013),211.412.41, https://www.admin.ch/opc/fr/classified-compilation/19830373/index.html

[2]UBS Bank, “UBS Global Real Estate Bubble Index”, 27 of September 2018 – https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/life-goals/2018/global-real-estate-bubble-index-2018.html?campID=SOME-CIOGREBI2018-CH-ENG-FACEBOOK-UBS-GREBI-WORK-20180927-BANNER-ANY-PAID

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