- You get a good cash yield every year.
- You don't pay local and state taxes for years.
- You receive a government subsidy for 10 - 20 years.
- You don't have to worry about vacancies.
- You own a new building with no repairs to worry about.
Rents in these buildings are about 30% lower than the
market rents for comparable apartments. The Government compensate you for this by giving
you the difference as a subsidy. This subsidy decreases every year but you can raise the
rents proportionately. When the subsidy finally disappears after 20 years, you can raise
the rents to the current market rate.
You must keep the building for 10 years for HCMs and 20 years for
HLMs. The law says that you can't sell the building until the subsidies have
expired. As they begin when the building is ready and the first tenants get in, and you
buy some time later, this period may be decreased by 1 to 4 years. That is to say,
some buildings have a mandatory holding period of as little as 6 years for HCMs and 16
years for HLMs.
Of course, if you need to sell because of financial difficulties,
you can always do it.
The aim of the Government is to provide affordable,
high-quality housing. Thus, the rents are fixed for 10 to 20 years, while the State
Government gives you an annual subsidy which amounts to the difference between the rents
the tenants pay and the market rents. However, these regulated rents are raised regularly,
and the subsidy decreases by the same amount, so the total rental income remains
unchanged. At the end of the 10 to 20-year period, all controls are lifted and you may
then raise rents up to the market level.
Building owners, like everyone else in Switzerland,
must pay taxes to the three different levels of government: local , canton, and
federal. However, foreigners who buy public utility buildings are exempted from paying the
first two taxes, at a decreasing rate, for a 20-year period. These taxes are not so high.
To evaluate the viability of such an investment, you should refer to our sample cash flow table to assess the cash flow projection for
these buildings.
Buildings usually cost around SFR2,000,000 and
upward. You can obtain a mortgage, but for usually no more than 50% of the value of the
building - after all, these investments are designed to draw foreign capital - so we are
looking at a minimum cash investment of around SFR1,'000,'000.
Yes you can, provided you are solvent and the mortgage
does not exceed 50% of the purchase price of the building (up to 80% in some cases). You
will pay about 4% interest rate on the mortgage, fluctuating or fixed. Long term, Swiss
interest rates are about 5%, but the trend is downward now, so you should not worry
too much about interest rates. Some banks will not require amortization for
mortgages on such new buildings, but that is your choice.
Yes, but you will have to create one especially. These
sorts of companies are called Société Immobilières (SI or property
corporation), and are a common form of ownership. Your anonymity will be preserved
from the public, but the administration will need to know your identity. The reselling
restrictions still apply to the shares of these corporations but they are a good option
for those who want to shield their identity from public curiosity, however, they cost a
little more in taxes and fees.
By buying the building through a specially created Société
Immobilière, your identity will be known only to the administration. See previous question.
About 5% net of all charges, depending on the building.
You can consult the sample cash flow table to see where the
cash flow goes over the years.
In addition to the yearly cash yield, you will get a
capital gain at the end of the holding period. This will be proportional to the rental
income increase, normally not less than 30% but usually much more.
Most of them are sold to Swiss pension funds and banks,
and the rest to foreign (individual) investors. Both are attracted by the safe cash yield
and conservation of principal.
Yes, exactly the same. And the fact that Swiss pension
funds, the biggest and most sophisticated real estate investors in Switzerland, invest in
such buildings ought to tell you something.
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