Run on Zurich notary’s offices: Housing initiative causes hectic activity

Not only private owners, but also pension funds and institutional investors are currently rushing to convert their apartment buildings into condominiums and “steel” their portfolios before new restrictions take effect.

The trigger is a series of left-wing initiatives that call for a right of first refusal for municipalities and also want to ban the conversion of rental properties into condominiums. Specifically, the so-called housing protection initiative aims to give municipalities throughout the canton of Zurich the legal basis to prohibit such conversions in future.

More about the initiative at wohnraum-schuetzen.ch

What sounds harmlessly like “more protection for tenants” has side effects. After all, those who convert can sell well above the income value and at the same time avoid a possible right of first refusal, which may already apply from November. And hand on heart: what local authority would buy individual condominiums if they can’t own the whole building?

The consequences are hectic notary’s offices, overloaded architects’ offices and trustees in a constant rush. Calculations, drawings and notarizations are taking place everywhere before the new legal situation creates facts.

Can you actually always convert?

When condominiums are created, minimum technical requirements apply, including in accordance with SIA standard 181 (sound insulation). If, for example, an older rental property is divided into condominiums, the increased sound insulation requirements for condominiums would actually have to be met.

This can make a conversion technically or economically unfeasible because floors, ceilings and partition walls would have to be renovated. In practice, this is often handled “accommodatingly”, but formally it remains a legal gray area (a building permit is not required).

Can municipalities always exercise a right of first refusal?

According to the text of the initiative, municipalities would in future be able to exercise their right of first refusal within 60 days of notarization, provided the Zurich electorate approves this at the end of November.

It sounds simple on paper. In practice, however, it is questionable whether municipalities are financially and organizationally in a position to do this at all. On the one hand, there are exceptions, for example in the case of personal use by the buyer, which is often the case with residential property transactions. Secondly, many municipal regulations do not provide the necessary financial autonomy to acquire properties without the approval of the municipal assembly. And this cannot be convened every 60 days.

This shows that the initiators have not thought their proposal through to the end. Much remains unclear in legal and operational terms.

Conclusion
Even if the right of first refusal is introduced, many municipalities would not actually be able to implement it at present. To do so, voters would first have to amend and re-adopt the respective municipal bylaws.

Moral of the story
What is intended as “housing promotion” has the opposite effect. As a result of the impending restrictions, rental apartments are disappearing while more owner-occupied apartments are being built. This lowers the hurdle for later sales, as each apartment can be sold individually and often after a change of tenant.

The planned initiative therefore acts as a brake on the rental housing market. It shows what happens when housing policy is pursued with mistrust instead of incentives: There will be more property ownership, but fewer affordable rental apartments.

You can find out more about the general political climate in the real estate sector in our latest article: A hot November ahead