Switzerland Dealing With Second Home Ban

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A ruling this May from Switzerland's highest court has banned construction of second homes in most Alpine villages with immediate effect. Sales agents and developers claim that the decision, following a referendum in 2012, will serve to raise prices for both foreign and domestic buyers in a market where demand remains strong.

The judgement places a ban on construction of all second homes in areas where they represent more than 20 percent of the existing housing stock and will affect almost 500 villages, according to research from the BakBasel Consultancy. The new ruling has also been applied retrospectively meaning that almost all the 2,000 new build permits issued since March 2012 are now blocked.

The final legislation expected later this year will clarify the exact definition of a second home, but until then there is the presumption that a primary residence is where owners pay their taxes. It remains unclear if apartments in a hotel with an obligation to rent out qualify as investment properties or second homes.

Overall, holiday homes account for 12 percent of Swiss properties, but in world-famous ski resorts such as Verbier the figure is well over 20 percent. Switzerland has long been concerned with "cold beds" -- second homes unused for more than a few weeks each year. The referendum was in part a response to this situation, although it was predominantly an environmentally-inspired attempt to preserve the Alpine landscape from over development.

Switzerland has been a favorite European destination for second home owners in recent years, thanks to its reputation as a financially and politically secure destination. Moodys puts the outlook for the country's banks as "stable," despite warning of possible dangers ahead thanks to rising property prices.

However, buying a home in Switzerland as a foreigner has never been easy. Only 1,500 permits are issued annually across the entire country and several cantons (regions) block all applications from non-Swiss residents. This latest ruling will only add to the imbalance between supply and demand, says Simon Malster of Investors in Property, which specialises in off-plan property in Switzerland.

"In the short-term we have already seen an increase in enquiries to buy new properties with valid permits and in the long-term property prices will continue to increase," Mr. Malster said. As evidence he highlights one developer in Les Collons with valid permits issued before the rule change who has already increased prices of his build to order chalets by 5 percent.

BakBasel claim that 2,500 second homes were built in Switzerland each year from 2000 to 2010, amounting to annual investment worth CHF1.2 billion.

The World Bank puts the number of annual visitors to Switzerland at 8.6 million, some 600,000 more than its own population.