Holiday properties differ from other properties – whether in terms of taxes, financing with mortgages or renting. Checking out the costs and benefits.
Even after the Corona pandemic, the strong demand for holiday homes in Switzerland continues. Compared to the previous year, prices rose by an average of almost 4 percent in the first quarter of this year, according to a study by the major bank UBS. Since the end of 2019, prices for holiday homes in the Swiss Alps have increased by a total of almost 30 percent. According to the bank, prices on the entire real estate market rose by around 20 percent.
The market has “dried up” and many holiday homes are no longer advertised but are only offered through real estate agents, said Maciej Skoczek, head of Swiss real estate investments at UBS, at the presentation of the study on Tuesday.
Holiday apartments: a good investment?
Swiss holiday properties are a rare commodity and have seen significant increases in value in recent years. But are they also suitable as an investment?
Rental income: On average, Swiss holiday homes can generate returns of 4 percent, said Skoczek. In destinations such as the Jungfrau region or Zermatt, returns of 6 to 7 percent can even be achieved.
However, this is generally only possible if you rent out the holiday home all year round and do not use it yourself – especially not at times when demand for accommodation in the Alpine region is particularly high. This includes dates such as Christmas or the sports holidays in February.
You have to have fun with it: Adrian Wenger, real estate expert at the financial services provider VZ Vermögenszentrum, advises not to look at a holiday home just from a financial perspective. “This calculation generally doesn’t add up,” he says. Whether a holiday property is worthwhile for the owner or not depends more on personal preferences. If you use the property often, enjoy it and can use it to live out your passion – be it skiing or mountain biking – then it’s the right thing. But holiday homes are rarely suitable as an investment.
Many Swiss families inherit vacation properties and associate them with childhood memories, says Wenger. Ultimately, the assessment of whether a vacation home makes sense depends on the total assets. Such properties also represent a certain luxury. “I would not recommend my clients to save on their own home in order to be able to afford a vacation home,” says Wenger.
Taxes, costs and mortgages
Interested parties should also keep an eye on the costs and taxes on vacation properties. There are differences in financing compared to other properties.
Higher usage costs: As is the case everywhere in the real estate market, the costs of using holiday properties have risen in recent years. Electricity, energy and any renovations have become more expensive.
Lukas Vogt, head of the mortgage broker Moneypark, lists the various operating costs that arise with a Swiss holiday property: These include insurance such as building and contents insurance as well as energy costs for electricity, heating and water. “Maintenance and repair costs must also be budgeted for, as well as administration costs if a management company is commissioned,” he says. In addition, there are municipal taxes.
In addition, the owners have to pay community costs. “These include expenses for the caretaker, garden maintenance and repairs to the shared property,” says Vogt. In addition, contributions must be made to the owners’ association. Buyers of holiday homes should also factor in maintenance and repair costs. “If the holiday property is rented out, there are fees for rental platforms or real estate agents as well as costs for cleaning and maintenance between rentals.”
Often high investment requirements: Many Swiss families own older holiday properties that are in need of significant renovation, says Wenger. “The investment requirement is often underestimated.” To estimate the costs, he recommends looking at the minutes of the last condominium owners’ meetings. These reveal discussions about previous renovations and thus also about the costs.
Keep an eye on taxes: Income from renting out holiday properties must be taxed as income. “If the holiday property is rented out in full, the imputed rental value is waived and the actual rental income is taxable,” says Vogt. If it is partly rented out and partly used by the owner, the imputed rental value is taxed proportionately and the rental income is added to the taxable income. Tourist taxes may also be incurred.
More difficult financing: In addition, mortgage lenders are stricter when it comes to financing holiday properties than they are for owner-occupied homes. According to VZ, most banks only grant a mortgage of up to 50 or 60 percent of the purchase price. In addition, money from the pension fund or Pillar 3a cannot be withdrawn early for a holiday property. As a result, more equity is needed when buying.
“In addition, not all providers finance holiday properties,” says Vogt. Providers such as pension funds or insurance companies are often not geared towards this.
Subdued price development expected: Skoczek expects prices on the holiday property market to stagnate this year. The economic downturn is likely to dampen demand for second homes. In addition, prospective buyers are likely to increasingly question the high prices, and after the pandemic, wanderlust is once again more noticeable among the population.
What to consider when renting
In order to make a profit from a holiday home, you have to rent it out. This obviously brings with it restrictions and effort for the owner. “For example, if you want to store your own things in the apartment, you need cupboards with locks to protect them from theft,” says Wenger. If you are not always on site yourself, in most cases you will need a property management company and a cleaning company – and this in turn costs a lot of money.
In addition, there are often restrictions on renting out condominiums. You should find out about this in advance. “The other condominium owners are generally not happy if you want to rent out the apartment via Airbnb or other internet platforms,” says Wenger. If the vacation apartment becomes a party location, you could even face legal action.
Vogt recommends first checking legal regulations and any permit requirements of the cantons and municipalities. These include, for example, the maximum rental period or specific noise and quiet times. It is also important to make sure that the existing building and contents insurance covers the rental, he says. Additional liability insurance may be necessary. The consent of the owners’ association or the neighbors should also be obtained.
Some holiday apartments are also integrated into hotel complexes and are marketed and rented out through the hotel. This can be an option for renting out the holiday apartment and using it yourself. However, Wenger doubts that good returns can be achieved this way. There is also the risk that the hotel could run into financial difficulties or even cease operations. Anyone considering buying such an apartment should consider becoming a shareholder in the hotel complex.