Investing in property: Yes, but what are the alternatives?

The property market is divided.

For some, rents are too expensive; for others, they correspond to what demand is prepared to invest.

According to a study by the BASS research agency, CHF 78 billion has been paid out to flat owners over the last 15 years.

The balance between rent levels and income levels is reaching its limits.

So making a property investment in Switzerland opens the door to a number of alternatives.

Construction activity has slowed, driving up the price of older homes. In addition, the benchmark rate on leases has increased the price of new homes. The supply situation has also slowed due to :

• The dissolution of households,
• The pandemic,
• The rise in immigration,
• The Land Use Planning Act (LAT).

It’s easy to understand why investors are reluctant to plan ahead in an uncertain and fluctuating environment.

In this article, we will look at 4 investment alternatives, including condominium ownership, property investment funds, crowdfunding and crowdfunding shareholding, and then compare them.

 

What is the PPE?

The PPE represents ownership by floors, in other words a form of co-ownership where each purchaser becomes the owner of a share of a building.

What’s more, each of them has exclusive rights of enjoyment over their property. This gives them rights over the sale, rental and development of the property.

For the purposes of distribution among the various co-owners, the term “quota” is used. These are allocated according to:

• the basic surface area of the private areas
• the surface area of ancillary premises,
• the surface area of units subject to a right of use.

The total value of the building is calculated in hundredths or thousandths.

However, it should be remembered that access to PPE in Switzerland has major drawbacks. More than 50% of the Swiss population are tenants. Without a substantial capital contribution, it is difficult to invest, as investors need to be able to raise 20% of the estimated value of the property, including 10% in cash, as equity. On top of this, there are the purchase costs, worth 5%, and the tax to be paid when withdrawing from the 2ᵉ pillar.

Combined with rising interest rates and a shortage of housing supply in the face of growing demand, does the alternative of property funds represent a more strategic and affordable investment at present?

 

What is a property fund?

A direct or indirect property investment fund is an investment method used to generate income and diversify assets.

There are two different ways of holding units in property investment funds:

• direct ownership of buildings, i.e. the fund owns the buildings directly.
• property companies, i.e. indirect ownership.

Let’s look at the first category (direct ownership of buildings).

This benefits from preferential tax treatment, as tax on returns and real estate assets is levied only on the fund. As a result, investors who are exempt from income and wealth tax avoid double taxation, which could penalise shareholders in property companies, despite the preferential taxation of dividends.

Important fact: Tax rates for real estate investment trusts with direct ownership of property vary from canton to canton.

It should be remembered that property funds are not investments renowned for their safety. On the contrary, they are brought to the fore by a propensity for market volatility and a lack of freedom. The choice of investment products, lack of transparency on monitoring. What’s more, it’s impossible to have a say in allocation decisions.

Lastly, this type of investment is recommended for people who are comfortable with the risks of fluctuations.

The “crowdfunding” solution, which involves bringing together several investors to finance a property project, seems more appropriate.

 

What is “crowdfunding”?

This alternative allows individuals to make a property investment with an affordable minimum amount. They benefit from the advantages of property ownership, such as rental income and an annual return proportional to the size of their investment.

Remember that investors are jointly and severally liable for the full amount of the mortgage.

You can also forget about data protection, as you will be entered directly in the commercial register.

What’s more, the procedures for reselling shares are sometimes complex and depend on the companies offering this type of investment.

So which solution should you choose?

 

What is equity crowdfunding?

Participative shareholding crowdfunding is a unique and profitable concept developed by SIPA Crowd Immo to enable investors to become shareholders and owners of a company that has been set up.

We acquire residential properties in Switzerland in partnership with our mortgage provider and commit our own funds.

The owners own a fraction of each flat in the building. They receive rental income in the form of dividends paid once a year.

Investors benefit from the advantages of a turnkey solution, which enables them to invest in a yielding property through simplified transaction management and controlled dilution of the risk of rental vacancy.

They are free to choose what to invest in, and their data is protected (no entry in the commercial register). They are also involved in the choice of asset allocation and have strategic decision-making powers.

Funds can be allocated freely to different properties and geographical areas.

The process of reselling units is simplified and the investment period is totally flexible.

 

Comparison of investment alternatives

The trend in Switzerland is towards renting. Investing in a PPE property is not for everyone and requires considerable financial resources, since it involves acquiring a property in its entirety.

What’s more, depending on the investor’s motivation, his or her interests may be quite different: the owner’s home, a second home, or permanent or seasonal rental.

Investors can rent out the property and receive a regular income.

However, the current inflationary climate offers no guarantee that the property will increase in value, and there is no risk of rental vacancies. What’s more, the initial capital outlay is very high, and is often subject to maintenance and management costs.

For property investment funds, liquidity management is easier. However, returns are highly volatile due to fluctuating interest rates, and investors have no control over the investments they have made, nor do they have full visibility of the information held in their funds.

Participative crowdfunding gives investors the opportunity to participate in the financing of property projects at the very affordable cost of a fraction of a flat. However, registration in the land register makes investors’ details visible. Although investors acquire a percentage of each flat in which they invest, they are jointly and severally liable for the total amount of the mortgage.

Nevertheless, they receive rental income and dividends once a year.

Participative shareholding crowdfunding offers investors the opportunity to become shareholders and owners of a fraction of a flat under the status of a public limited company (SA). They receive rental income and SIPA Crowd Immo pays them dividends once a year. We commit our own funds in partnership with our mortgage provider. This gives them greater flexibility and comfort in managing their property.

Following on from this analysis, it is fair to say that equity ownership brings together the most comprehensive aspects of making a property investment, namely: simplicity, security, tangibility and return.

Contact us todayto find out more about our yield offers and to benefit from tailor-made support from our team.