Abolition of the Lex Koller law means foreign nationals will be able to purchase residential property in Switzerland without being subject t...

Abolition of the Lex Koller law means foreign nationals will be able to purchase residential property in Switzerland without being subject to a complicated authorization procedure. A new report produced by Credit Suisse Economic Research analyzes the current market for second homes and vacation homes in Switzerland. The "Swiss Federal Law on Acquisition of Real Estate by Persons Resident Abroad" – to give the Lex Koller its full title – was originally designed to protect Switzerland against an "inundation" of foreign nationals. However, the Federal Office of Justice has decided that with the exception of a few communities the law no longer serves any purpose and should therefore be abolished. The demand for vacation homes remains very high in a number of tourist regions. To prevent the countryside in these areas from becoming overdeveloped, the Swiss Federal Council intends to revise the Spatial Planning Law. This is deemed a more appropriate solution than the Lex Koller regulations currently in force. Under the new rules it will be largely immaterial whether vacation homes are in the hands of foreign or Swiss nationals. The Federal Council hopes its abolition of the law will provide a boost for the economy. The new rules should help safeguard jobs and even create new employment. There is also likely to be an expansion in the supply of rental accommodation, which is currently tight in some areas. A major benefit lies in the lowering of administrative barriers – particularly in relation to the relevant cantonal authorities – now that the complicated authorization procedure required in order to purchase land and vacation homes no longer applies. Law to Be Abolished in 2010 at the Earliest The Lex Koller will not be abolished until three years after the revised Spatial Planning Law takes effect. This is to ensure that the cantons and municipalities have sufficient time to implement the necessary measures. As far as timing is concerned, the Lex Koller is unlikely to be abolished before 2010. Switzerland – a Country Awash with Vacation Homes Second homes and vacation homes are very popular in Switzerland. "In Switzerland there are as many as 181,000 vacation homes and 238,000 second homes," says Pascal Roth, co-author of the report. The list of tourist areas with the highest percentage of vacation homes is topped by St. Moritz, Flims/Laax, Verbier, and Goms. Some areas have focused so heavily on tourism that four out of five homes stand empty for a large part of the year. While the very high density of vacation homes does generate income, it also has its drawbacks for the local population and the countryside. The high demand for vacation homes has led to rocketing prices for residential property. Swiss Tourism: No Turnaround Yet - Tips for financing a vacation home At certain times of the year the increase in the number of cars on the road can be a problem. The infrastructure is often geared toward the peak season, and at other times fails to meet the needs of the local population. The countryside becomes heavily built up with homes that are only occupied on a temporary basis. In light of this problem, the Upper Engadine decided to take the initiative in June this year. The number of vacation homes built will be restricted to 12,000 square meters of gross floor area per year – equivalent to about 100 apartments. The number of new vacation homes built in and around St. Moritz will therefore be reduced by a quarter. A Second Home in the City Second homes are popular not only in the tourist areas. "Half of all second homes and vacation homes in Switzerland are located in the conurbations surrounding the major centers, in particular Zurich, Berne, Basel, Geneva, and Lausanne," says Roth. In recent years the increase in the percentage of second homes has been particularly noticeable in the city centers. Between 1990 and 2000, the figure rose by 130%. In contrast, the increase in tourist areas was a relatively low 3%. Demand for Vacation Homes Unlikely to Rise in Future In spite of the abolition of the law, Pascal Roth sees no grounds for a rise in the demand for vacation homes. First, the quotas defined by the Lex Koller are not being fully exploited even now. Second, the revised Spatial Planning Law is likely to prevent an uncontrolled increase in supply. The study says that demand for vacation homes is influenced by other factors, such as the level of economic growth in Switzerland, the attractiveness of the tourist areas, and the availability of hotel rooms and the cost of an overnight stay. Demographic trends should not be ignored either. The cantons of Ticino and Valais are favored retirement destinations among the older generations. Given higher life expectancy this is likely to be a significant factor. This feature was first published in the Credit Suisse eMagazine.