Real estate is an important part of a truly diversified portfolio.
It offers an investment into a “hard asset.” This means that you’re investing into something that is real and tangible, something that has intrinsic value. While an investment into a company’s stock can be a profitable one, there is always the possibility of that investment going terribly wrong. The company could go under, leaving your stocks worthless. The beauty of an investment into real estate is that its value will never hit zero, no matter what.
One of the most appealing real estate markets globally is that of Switzerland. With steady growth and a strong economy, the country has become a haven for international businesses, investors, and even those looking to make a personal move in their lives.
With high prices, the market is appealing to the most serious and successful investors. That, combined with low home ownership levels in the country, and finding renters won’t be an issue, providing a more than sufficient return on investment.
Modern Portfolio Theory
All this talk on the importance of diversification isn’t merely postulating on our part. No, diversification is in fact sewn into the fabric of many modern, respected portfolio theories. Take, for instance, Modern Portfolio Theory (MPT).
Modern Portfolio Theory is an asset management strategy developed by Nobel Prize winning economist Harry Markowitz. It can most easily be defined as “a theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward.”
Most simply put, Modern Portfolio Theory is about maximizing your return while minimizing your risk. You want to select your investment so that you diversify your risks and not give up on your expected return.
The Swiss Real Estate Market
When it comes to investing in international real estate, Swiss real estate is the crème de la crème. Swiss real estate is notoriously difficult for foreigners to obtain, meaning that this real estate is highly coveted by smart investors.
Being an incredibly small but wealthy nation, Switzerland is an optimal place to purchase real estate. The small size of the country puts a higher premium on real estate than would exist in a more sprawling nation. In addition, the relatively high wealth of the citizenry means that it will not be hard to find clients to rent out one’s Swiss real estate to.
For most hopeful buyers, the Swiss housing prices are simply out of reach, even with current low interest rates. With the combination of high prices and strict mortgage requirements, the low interest rates mean nothing. The rise in prices has begun to slow down, however, thanks to falling mortgage rates. Asking prices for luxury homes has experienced a decline of 5%, and sales prices have lowered roughly 10 to 20% since 2015.
In 2008, the area around Lake Geneva witnessed a high increase in real estate prices after multinationals brought jobs to the area, which created a demand for housing. Four years later the house prices dropped around 20%.
Prices of real estate vary by region. In areas like Lausanne, a luxury apartment can be around 11,000 Swiss francs per square meter and can sit around 15,000 Swiss francs per square meter in Geneva. Near Lake Geneva and Lake Zurich, prices range from 13,000 to 20,000 Swiss francs per square meter.
Why Invest in Swiss Real Estate?
There are numerous reasons why buyers are considering real estate in Switzerland, including a new lifestyle, quality of life, a vacation home, a permanent home, better education, relocating for work, or an investment.
Due to steady economic growth that Switzerland has experienced in the past decade, investing in real estate in the country can be quite profitable compared to other European economies. The market has proven attractive for individuals and large multinational companies. In fact, Swiss real estate investments are some of the most profitable of the past 20 years. The real estate sector is stable with low market volatility.
The country is highly regarded as a strong nation for international businesses and it has a powerful presence with companies in the insurance, pharmaceutical, and banking sectors. In fact, there are 12 Fortune Global 500 companies based in Switzerland. That’s a lot for a country of that size.
Why should you specifically invest in real estate? The value of Swiss housing stock is four times the country’s annual GDP, at 2,516 Swiss francs! The commercial property contributes an additional 430 billion Swiss francs.
The residential rental property market is very attractive to investors, because home ownership rates are very low. Only about 40% of the Swiss population owns their home, which is low by international standards. This means that around 53% of 4.15 million people living in Switzerland live in rental spaces.
Who is Buying Real Estate?
Foreign buyers come from all over to take advantage of Swiss real estate, such as those from other European Union countries or the United States, Canada, or Russia. Though there are many buyers from outside counties, 85% of home buyers are Swiss.
There are no restrictions for EU citizens to buy property, but a non-EU citizen must obtain a permanent residence status permit to buy real estate.
For foreigners looking to invest in or buy property in Switzerland, there are many federal restrictions, as well as laws found in each of the individual states. Along with the purchase, the buyer must pay the real estate agent’s commission, sitting at around 3% of the purchase price, the registration tax on the transfer of ownership, any notary and land registry, and legal and land surveying services.