Good news for owners of investment properties

On October 26, 2020, the Federal Supreme Court ruled that the net yield for an investment property with rental properties may not exceed 2% above the reference interest rate calculated quarterly by the Federal Department of Economic Affairs. Previously, the maximum yield was capped at 0.5% above the reference interest rate. This decision has caused quite a stir, particularly because it could directly affect many people in Switzerland, as there are around 2.1 million rental apartments in our country.  

A land of tenants

Precisely because it affects so many people and housing is a basic right, rent is considered a compulsory consumption and, accordingly, tenant protection is always a political issue that is currently once again on the agenda in Bern. The concern is clear: no unjustifiably high profits should be made at the expense of tenants and the cost rent plus net yield should apply in accordance with the current Federal Supreme Court ruling.  

The key question: What is a permissible return?

Around a third of all rental apartments are owned by institutional investors such as pension funds, which must be able to generate a profit that is significantly higher than inflation and therefore benefits us all in old age. And it should also remain interesting for private investors to be able to invest in attractive living space with the chance of a moderate but good return.  

Furthermore, social housing has historically been in a strong position in Switzerland – a quarter of Zurich’s rental apartments, for example, are owned by building cooperatives and private or church foundations. With the basic article adopted by voters at the end of November 2011, this proportion must be increased to a third by 2050. This will also ensure sufficient affordable housing for people who need it in the long term. In this context, the current Federal Supreme Court ruling appears more socially acceptable.  

The right decision with foresight

Overall, it can be said that the market and the state are playing the right game and that a real estate market with the prospect of healthy returns that can be reinvested in new and attractive housing is to be welcomed in the long term. It should also be noted that most returns have probably violated the old rule, meaning that an estimated 70-80% of tenancies did not comply with the law. Such a situation is of course offensive and the Federal Supreme Court has made a long overdue legalization of reality with its decision. For this reason, we consider a net yield of 2% above the reference interest rate to be appropriate in today’s long-lasting low interest rate environment. Especially as this 2% only applies as long as the reference interest rate itself does not rise above 2%, thus preventing the net yield from rising above 4%.