Switzerland, What price luxury?

On January 5th, the news broke abruptly like an unwelcome fall of snow. This was the day that the Swiss National Bank announced, to everyone’s surprise, that it would scrap the cap of CHF 1.2 (Swiss Francs) to the Euro, which had been in place since 2011. The Swiss stock exchange fell to its lowest level since the last international financial crisis in 2008. The business community, including exporters such as watch manufacturers, were alarmed, going so far as to call it a financial “tsunami.” However, the Swiss appear to be gaining from the currency appreciation, with many running to spend their strong franc in neighbouring Germany and France. In a single day, their purchasing power increased by 20 to 30%. It’s also good news for border workers who come to work in Switzerland on a daily basis. Their income has increased to such an extent that some of them, who are originally from Switzerland, may consider returning to the country if real estate prices become more affordable.

A stronger franc. It’s too early for any objective analysis and Swiss estate agents remain cautious about the meteoric rise of the franc. “It’s still difficult to predict the repercussions for real estate but I’m quite optimistic when it comes to the luxury market,” states Georges Kiener, Director of Barnes Switzerland. “Buyers are often wealthy foreigners, who are already residing in Switzerland, or holding non-euro denominated assets. What’s more, a stronger franc, promotes both selling and purchasing and underscores the importance of personal assets.” There is an exception, however: “Ski resorts, which are desirable holiday destinations, could be more affected than the towns.” Claude Atallah, Director of SPG Finest Properties Christie’s, for his part, sets out two assumptions that may eventually merge.“Either the Swiss franc will be seen as the only existing safe haven currency or property prices will drop in order to meet new budgets. In addition, the value of real estate has already been eroded. In 2014, for the second consecutive year, prices dropped by around 15% but they had gone too high. Supply has also increased. For example, we’ve a number of properties to sell in Cologny, one of the richest areas in the canton of Geneva, something that would have been most unusual in the past.” Jacques Emery, in charge of Geneva sales for Naef Prestige KnightFrank, makes another prediction: “Domestic demand should continue, provided that interest rates are very low.” And as for international clientele, “Switzerland remains attractive for reasons other than its money, particularly its stability.” He cites the case of a client from Singapore, for whom he is still looking for a property. However, he has seen his initial budget of 8 million Swiss francs drop to around 6-7 million.

Fiscal interrogation. 2014 hasn’t been a great year for the high-end of the Swiss property market. A series of referendums posed a major threat to the “forfait fiscal” or fiscal arrangement. This tax system, peculiar to Switzerland, is particularly attractive to foreign residents with large assets. For them, this essentially means negotiating payment of a lump sum to the Swiss tax authorities, a sum that is based on lifestyle in the country and not on income earned abroad. Foreign owners, worried about losing their privileged tax status, have been flocking to estate agents to get their properties valued. Some were even planning to leave the country and head for the UK, which adopts a more lenient approach towards the wealthy. Buyers, who are also worried, have displayed a wait-and-see attitude. The market has stalled, supply has slightly increased and prices have started to fall.

Lake Geneva and its treasures. The outlook for traditional residential sectors, around Lake Geneva, remains positive – whether it’s a flat priced around the one million mark or a 2 million franc house. Investors are regularly looking for flats to rent in this sector. The luxury market has suffered more because of economic uncertainty but also, and particularly, because of the nature of properties available. “The Swiss housing market does not have as many high-end, old properties as Paris,” observes Jacques Emery, regretfully. “Most properties were built in the 1970-1980s, which means there’s a gap between supply and demand,” as properties sought by buyers are a far cry from the soulless maisonette, that needs redecorating, or even demolishing – and that’s after you’ve paid 15 million for it! No, what’s important is “prime location.” Elegance, good taste and quality and something that makes sense. There were some fantastic deals last year such as Château du Martheray, a 16th century building, renovated over a period of 4 years, set in one hectare of land between Geneva and Lausanne with 1,500 m2 living space, a formal garden and view of Lake Geneva. An agreement was reached between the Italian owner and a French buyer, both long-term Swiss residents, for a sum around CHF 20 million. There are some remarkable properties available such as a new, unlived-in penthouse, in the Gevray apartment block, in Geneva. In the canton of Vaud (Lausanne), properties are extremely popular on account of their vast waterside grounds and view of Mont Blanc, much loved by the British. In L’Isle, in the Morges district, a 10-room equestrian property is on the market. Barnes has valued it at 3,490,000 Euros.

The Lure of the Summits. Just as the whole of Neuilly heads for the boardwalks of Deauville at the weekend, so all of Geneva heads for the mountains. If you have a certain level of wealth, you can enjoy being part of an exclusive social enclave. Having said that, the Swiss don’t just hand over their land, no strings attached. In some tourist areas, the law only allows foreigners to purchase a 1,000 m2 plot of land with 200 m2 living space. There are allocated quotas but in the current climate, they’re pretty slack and some cantons have yet to meet them. The communities of Verbier, Crans-Montana and Villars have more choice than usual. These ski resorts are renowned for their exclusive residences and recognized for the quality and precision of their construction work. When an owner, from London or Paris, contacts a tradesman about carrying out a repair, this job will be completed on schedule and in time for his arrival, with the famous precision of a Swiss watch manufacturer. Less sporty but more glamorous is the village of Gstaad which has a limited supply of property available. According to Thierry Fisher, in charge of the John Taylor agency, “buyers are increasingly coming from the Middle East and Northern Europe. We also have large families from Central and South America.” There are few Russians which means that the market hasn’t been affected by their sudden retreat, as is the case in Courchevel. The price of a new building is approximately CHF 40,000/m2. Properties built ten to thirty years ago, if they are well located, exchange hands for approximately CHF 32,000 /m2. The average price in the region is CHF 24,000/m2. Furthermore, renting out a property can be extremely profitable, if rates charged are anything to go by: between CHF 80,000 and CHF 140,000 for two weeks over Christmas and New Year. “The demand for rental properties is very high, provided that the chalet is large, with 5,6 or 7 bedrooms, has access to hotel services and, if possible, an indoor pool and gym,” states the agency manager. “Ideally, the property should be located in the centre of the village or near a 5 star hotel.” How high can prices go? Rumour has it that Madonna bought her chalet for more than 30 million. The actual price remains a well-kept secret, in true Swiss style: the Swiss are, after all, a model of discretion. Gstaad isn’t Miami and Lausanne, in spite of its hills, isn’t Hollywood. The Swiss understand how to be rich without being ostentatious.