If you are considering buying a place to live in Geneva or its environs, be aware that the purchase cost per square metre is expensive. Add to this the following requirements made of a purchaser and it becomes clear why, as we reported in a previous article, only 35% of Swiss residents own the property they live in despite very low interest rates.
Financing the purchase of a property in Switzerland is more challenging than in most countries. Buyers must provide 20% of the purchase price from personal funds; 50% of this capital (10% of the purchase price) can be drawn or pledged from a Swiss pension plan (2nd and/or 3rd pillar). An estimated 4% of the purchase price must be provided from personal funds to pay notary fees, transfer duties and property taxes. A further estimated 2.5% of the total amount must be also provided to finance the mortgage note.
Buyers have to pay charges and for the upkeep of their property, which in an apartment in an old building can cost as much as CHF 1,500 per month. Estimates for annual charges are generally based on 1% of the purchase price. And if you are buying an apartment, it is quite possible that you will have to factor in the eye-watering cost of a buying or renting a parking space as well.
The Swiss real-estate process is a relatively unique one because it splits your mortgage into two ranks (rank 1: 65% and rank 2: 15%); rank 2 has to be repaid by your retirement date, rank 1 can remain open. This means that a lot of Swiss property owners never actually finish paying for their properties in their lifetime. Why? Tax optimization – mortgage interest is tax deductible.
Charles McHugo is the owner of Real Estate Advisory Service & Relocation