On September 28, Switzerland will vote on a major reform: the abolition of rental value. This particular tax levies a theoretical income attributed to owners who occupy their homes. This long-awaited vote could profoundly reshape the Swiss real estate landscape.
This article explores the ins and outs of this reform, as well as its potential consequences for the Swiss real estate market.
Understanding rental value
The rental value is a notional income attributed to owners occupying their real estate property. It corresponds to the rent they could receive if their home were rented out. Although this is not income that is actually received, this amount is included in the owner’s taxable income in accordance with Swiss tax legislation. (Source : sbfi.admin.ch).
Introduced at the federal level in 1934 as an emergency measure to stabilize public finances during the global economic crisis, this tax aims to ensure tax fairness between owners and tenants. It is accompanied by tax deductions for landlords, particularly on mortgage interest and maintenance costs, energy-efficient renovations, and heritage preservation measures, which partially offset the tax burden.
More specifically, the rental value corresponds to 60-70% of the rent that a similar property could generate, calculated on the basis of the property’s tax value, which is approximately 70% of its market value.
For a condominium apartment, it corresponds to approximately 4.25% of this tax value, and 3.5% for a single-family home. These rates are indicative and may vary slightly depending on the canton. (Source : SwissLife, Will rental value be abolished? Overview of the latest developments).
Example: An apartment with a market value of CHF 1 million has a tax value of CHF 700,000. Its rental value is therefore approximately CHF 29,750 per year (700,000 Ă— 4.25%). Owners can then deduct 20% of this value as maintenance costs, or more if the actual costs are higher.
The complexity of abolishing rental value
The elimination of rental value is a complex issue due to its integration into the overall tax system. Removing this mechanism would require redefining the treatment of the many tax deductions associated with it, whether direct (mortgage interest, maintenance costs) or indirect.
In addition, second homes are currently still subject to rental value when they are not rented out. Abolishing this would therefore have significant consequences in Alpine and tourist cantons, where vacation homes represent a significant proportion of the housing stock, impacting local fiscal balance and market competitiveness. (Source : Neho, Abolition of rental value – a solution finally in sight?).
Tax and economic issues
– Tax fairness
The rental value is criticized because it taxes a theoretical income, the advantage of living in one’s own home. Many homeowners consider this system unfair, while some economists point out that it maintains a balance between tenants and landlords.
Without this mechanism, homeowners would benefit more from tax deductions on interest and maintenance, exacerbating inequalities between homeowners and renters.
– Debt management
The current system creates a distortion in real estate financing strategy. The more a homeowner repays their mortgage, the fewer deductible expenses they have, while the taxable rental value remains constant. Thus, a household that improves its financial situation may paradoxically see its taxes increase. Eliminating the rental value would reduce this bias and encourage more natural debt reduction.
– Budgetary implications
The reform also raises the issue of public finances. The elimination of rental value would reduce the tax burden on property owners, but at the same time reduce revenue for the federal government and the cantons. The latter would have to find other sources of funding, with the risk of other taxes being increased, which could limit the expected gains in fairness.
Potential consequences for the real estate marketr
– Impact on demand
The reform could change the behavior of market players. For owner-occupiers, buying a home would become more attractive, stimulating demand. (Source : Vermoegenszentrum, Abolition of rental value: who would be the winners, who would be the losers?).
Conversely, for investors, reducing tax deductions on interest and maintenance costs could diminish the appeal of certain real estate investments, particularly those generating modest rental income. (Source : UBS, Abolition of rental value: consequences for renovation).
-Impact on supply
New construction: Developers may reassess the profitability of their projects in light of the elimination of tax deductions, which could favor new construction over renovations.
Renovations and maintenance: The removal of tax incentives for maintenance and renovation work, including energy efficiency improvements, could reduce the incentive to invest in existing real estate, potentially slowing down projects, particularly for local SMEs.
Adaptation by existing owners: Owners could adjust their investments, favoring renovations with a high return on investment or those that comply with new tax priorities.
– Impact on prices
Simultaneous adjustments in supply and demand could cause fluctuations in the real estate market. According to the UBS study « Real Estate Focus 2025 », The abolition of rental value could lead to price increases of up to 13% due to increased attractiveness for owner-occupiers.
Nevertheless, prices will continue to be influenced by major macroeconomic factors, such as interest rates, economic growth, and demographic dynamics.
In summary, the rental value reform could reshape the Swiss real estate market by making purchasing more attractive, changing supply and price dynamics, and posing challenges in terms of fairness and public financing. Its effects will depend as much on political choices as on macroeconomic and demographic developments.
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