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What is the general climate of real estate investment in your jurisdiction?
Swiss real estate prices have remained consistently high for years, but the market remains attractive, particularly due to low mortgage interest rates. Demand for residential property therefore remains stable. However, the vacancy rate of rented residential and commercial buildings is rising. Residential property funds are particularly affected by this development, which is why there are signs of a decline in the distribution yield of property funds.
Who are the most common investors in real estate?
The most common investors in real estate in Switzerland are real estate companies, pension funds, insurers, housing co-operatives and private investors.
Are there any restrictions on foreign investment in real estate?
Under the respective Swiss law (the so-called ‘Lex Koller’) direct investment in real estate and the acquisition of shares in a residential real estate company by a foreign investor (ie, a person abroad or a foreign company) is permitted only with a corresponding administrative permit. However, no permit is required if the property is the place of business, trade or main residence of the foreign investor. Further, foreign investments in residential property are possible by involving one or more Swiss partners in a joint venture or by acquiring shares in the partner company. However, it is assumed that the Swiss partners exercise effective control over the joint investment. Foreign investors may acquire shares in a residential real estate company listed on a Swiss stock exchange without a permit, provided that actual Swiss control is ensured. If a foreign investor holds more than 33% of the company's capital, the company is considered a foreign-controlled company, which is why no further residential properties may be acquired by the company or may be acquired only with a corresponding permit. The regulations for the granting of a permit are the responsibility of each canton and therefore vary.
What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?
In a direct investment structure, the investor acquires the real estate property. It may take out a mortgage with a bank, pension fund or insurer, in which case it must provide at least 20% of the purchase price from its own funds. The mortgage interest can be deducted from the investor’s taxable income.
In an indirect investment structure, the investor acquires shares of real estate companies or funds. In the case of real estate funds, it must be considered from a tax perspective whether the fund owns the properties directly or indirectly. If the fund owns the property directly, the fund is taxed whereby the investor pays these taxes indirectly via fees or by distributing lower income. However, the distributed income is generally exempt from income and wealth tax. If the fund holds the units in the properties only indirectly by investing in real estate companies or other funds, the investor pays taxes on the distributed income.
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