Après Ski to Profit: Investing in a Swiss Chalet
Switzerland has long been revered for its pristine mountain landscapes, dotted with lovely villages that just happen to be home to some of the world's best ski resorts. Yet many Swiss nationals began to consider the dark side of their country's popularity among tourists when the booming market for vacation homes began to negatively affect the quality of life in many ski resort areas.
Back in 2012, the nation took decisive action: Residents of Alpine towns cheered when the Swiss government passed a real estate law to limit purchase of vacation properties. Effective January 2013, the law mandates that only a fifth – just 20% – of a town's residential properties can be second homes.
Such a law may sound draconian to would-be investors looking to purchase their own piece of Alpine wonderland. Yet surprisingly, its benefits may extend not only to residents hoping to retain an authentic, locals-oriented community atmosphere in their villages, but to investors as well. The limited stock of available properties means that in Switzerland, an investment in a ski chalet is as close to a win-win proposition as you might find in vacation real estate – notwithstanding avalanches, of course.
Here's a brief primer on why a Swiss vacation property may be such an exceptional investment, and some tips to ensure that along with spectacular views, your ski chalet delivers a profit.Peak Views and High Prices
Switzerland is home to some of the world's most beautiful mountains: the names Matterhorn and Jungfrau conjure legendary landscapes, clear Alpine lakes, postcard-perfect peaks and snowy chalets where blissed-out skiers (and a few supermodels) relax over steaming cauldrons of Gruyère fondue and après-ski cocktails. Yet while these idyllic clichés of the Swiss Alps often ring true, so do the not-so-idyllic clichés about Swiss prices.
It's not just the chocolate here that is rich: At $54,800, Switzerland's gross domestic product (GDP) per capita ranks among the highest in the world. The country of 8.1 million also has admirably low unemployment and crime rates, while earning good marks for its educated labor force and booming industries in high tech and manufacturing. The downside of the strong economy and high quality of life: the price of vacation property reflects the country's wealth.A Mountain of Rules
Switzerland is a confederation of 26 cantons – similar to U.S. states – where property laws and bureaucratic procedures can vary considerably from canton to canton. These complex local laws can present serious complications to real estate investors: Make sure to thoroughly investigate canton and city laws before you begin your property search. And, of course, you'll need an excellent realtor who is intimately familiar with not only the local property market, but also the local bureaucracy and the rules regarding foreigners.Location Matters
In upscale ski towns, such as St. Moritz, prices per square foot have been running upwards of $1,800 for the past two years; in the Graubünden canton, the average price for a ski chalet runs more than $3 million. While second homes in the poshest and largest ski areas – think St. Moritz, Verbier and Val d'Isère – will likely retain their value, a better value proposition may be to seek out chalets in Alpine villages where the market is simply less inflated.
One strategy is to explore villages adjacent to well-known ski resorts. These provide accessibility to legendary slopes and glamorous après-ski scenes, but lack the jaw-dropping prices associated with the celebrity haunts. Outside of Verbier, for instance, the villages of Nendaz, Les Collons and La Tzoumaz offer solid investments with more bang for the proverbial buck. Some real estate professionals who specialize in Swiss properties suggest considering villages that lie within German-speaking cantons. While ski resorts in French-speaking cantons are more popular with European Union (EU) buyers – including the British, who make up a significant portion of the country's foreign investors – German-speaking cantons tend to be better run and may offer better value. One example? Outside of German-speaking Zurich, a city that usually ranks near the top of global quality-of-life surveys, resort town Flims offers excellent skiing without the lavish prices of nearby celebrity favorites Davos and Klosters.Old vs. New
Three years ago, Swiss voters approved a ban on the construction of vacation homes in towns where such dwellings make up at least 20% of all housing. Known by locals as cold beds, these often-vacant properties have been blamed for creating an eerie ghost town atmosphere in the poshest and most popular villages across the Alpine region. For potential investors, that means that if you've set your sights on a chalet in any of the 500 villages that fall under the law's jurisdiction – primarily in the regions of Valais, Graubünden and Ticino – you'll be looking at existing properties rather than drawing up architectural plans and hiring a contractor.Supply and Demand
Since the 1970s, foreign investors have snapped up more than 450,000 vacation homes in Switzerland. The changes to Swiss property laws that went into effect in 2013 have meant that such properties are predicted to continue rising in value due to limited supply. For many potential investors, buying a Swiss ski chalet may be, economically speaking, a now-or-never proposition. See How to Finance Foreign Real Estate for information on how to pay for a Swiss chalet and Do You Get U.S. Tax Deductions on Real Estate Abroad? for insights into the tax consequences of such a purchase.The Bottom Line
If the allure of owning your own Alpine chalet in Switzerland ultimately proves irresistible, you're in good company. You'll be joining the ranks not only of supermodels, financiers and Hollywood film directors, but also royalty. Earlier this year, the Duke and Duchess of York purchased a chalet in the picturesque ski resort of Verbier, reportedly worth as much as £13 million, or more than $20 million. Purchased with a joint mortgage by the now-divorced couple, it's considered by royal insiders to be a family investment. If such an investment is considered smart enough for the royals, perhaps it's smart enough for you, too.