The property professionals’ solution

On September 28, the people and the cantons will vote on a tax reform that directly concerns property owners. Two aspects are at stake :

• Abolition of the rental value ;
• Introduction of a tax on secondary residences.

If the special tax on secondary residences is rejected, the rental value will remain in force. This double decision could transform the dynamics of the Swiss real estate market.

The end of the rental value: a relief for the owners

Introduced in 1934 as a crisis measure, the rental value requires the owners to declare as taxable income a fictitious rent for the dwelling they occupy, whether it is their main or secondary residence. This theoretical income corresponds to at least 60% of the market rent.

In return, the owners can deduct from their taxes :

• the mortgage interests ;
• the maintenance costs.

This system benefits above all the heavily indebted households or those who invest in renovations.

In case of abolition of the rental value

• The first-time buyers will be able to continue to deduct the mortgage interests for ten years.
• Certain tax deductions, in particular for the maintenance costs, would be restricted.
• The cantons could establish a tax on private secondary residences in order to compensate the tax losses, estimated at 1.8 billion CHF, linked to the abolition of the rental value.

Macroeconomic effects: winners and losers

At the national level, the reform would reshuffle the cards. The owners of main residences would be the big winners, thanks to a decrease of their taxation. Conversely, the owners of secondary residences would bear an increased tax burden intended to compensate the losses of the cantons and of the Confederation.

Renovation: an activity under pressure in case of acceptance of the reform

The suppression of the rental value would be accompanied by restrictions on the tax deductions linked to the maintenance works for the owner-occupiers. Consequences: the non-urgent or non-energetic renovations would lose in attractiveness, for lack of fiscal advantage. Therefore, the single-family houses and the occupied residential segment could experience a slowdown of the modernization works (kitchens, bathrooms, aesthetic improvements).

For the renovation companies, this implies the necessity to reposition their offer on the energetic efficiency, the renovations with high return on value, or the preventive works.

New market segments stimulated

• Retirees: the suppression of the rental value could encourage those who hesitated to become owners, because the purchase of a dwelling would become fiscally more advantageous.
• Families: this reform would support the demand for single-family houses and family dwellings.
• First-time buyers: the abolition of the rental value would improve the profitability of a first purchase. Moreover, the mortgage interests would remain deductible for ten years for the new owners.

Globally, the reform would be a good news for the sales of main residences, notably in the urban and peri-urban areas. The promoters active on this segment (small buildings, condominiums, family villas) could thus find more easily buyers.

Risk for the market of secondary residences

The reform would exert a double brake on the acquisition of secondary residences :

• An increased tax burden on the secondary properties ;
• Less incentives to acquire them, even if the households have a reinforced financial capacity.

Conceived to compensate the abolition of the rental value, this measure could finally lead to a slowdown of the secondary market, notably in the touristic regions.

What happens if the reform is accepted?

The abolition of the rental value could

• Stimulate the access to property, notably in certain regions. The families and the households who hesitated to buy could take the step thanks to a lightened tax bill. The first-time buyers would moreover keep the possibility to deduct their passive interests for ten years.
• Reduce the incentives to renovation: without tax deductions, numerous modernization projects could be postponed.
• Encourage a tendency to deleveraging, since the fiscal advantage linked to the mortgage interests would disappear.

The introduction of a tax on secondary residences could

• Lower the attractiveness of secondary residences for private use
• Discourage foreign investors.
• Exert an increased tax pressure on the unoccupied or little used properties, inciting to sell or to rent.
• Refocus the demand towards the main residences or the properties intended for renting.

What happens if the reform is rejected?

Maintaining of the rental value: the current system continues. The owners will continue to pay a tax on a fictitious income, which could slow down the access to property, in particular for the young households strongly indebted.

Unchanged current regime: it will remain advantageous for the rental investors and the buyers on credit, as long as their tax deductions exceed the rental value.

No tax on the secondary residences: the leisure properties would keep their current taxation, which would support this segment, notably in the touristic regions.

In a few points: what to do if the reform is accepted?

• Adapt the strategy to the main residences: bet more on the construction and the sale of properties intended for the main habitation, made more fiscally attractive.
• Reduce the dependence on the secondary residences: anticipate a decrease of the demand in this segment.
• Review the profitability of the renovation projects: integrate the fact that the renovations will no longer be deductible from the taxes for the owner-occupiers (except energetic).
• Evaluate the cantonal and communal specificities: certain cantons depend strongly on the taxation linked to the secondary residences.
• Anticipate the evolution of the households’ demand: an increased purchasing power could stimulate the sales of family and urban properties.
• Monitor the mortgage rates: if the rates remain low and the taxation favors the ownership, a recovery of the demand could appear, notably in the periphery or in the still affordable regions.

In conclusion

The vote of September 28 could profoundly redraw the rules of the game between owners of main and secondary residences, by modifying the fiscal incentives. Its outcome will determine not only the dynamics of the Swiss real estate market, but also the future priorities in the matter of renovation, access to property, and rental investment.


Sources
admin.ch - Article
admin.ch - Article
easyvote.ch - Article
lemanbleu.ch - Article
rts.ch - Article
uspi-vaud.ch - Article