New momentum for real estate funds
Switzerland has abolished the imputed rental value. A historic turning point in real estate taxation. While private homeowners will benefit directly, the impact on real estate funds will only become apparent at second glance. The market could shift noticeably, with consequences for prices, yields and tax conditions.
For real estate funds, the reform seems unspectacular at first glance. Their properties are rented out, the rental income generated from them is still taxable and imputed rental value has never played a role here. Institutional investors therefore continue to pay tax on real income and not on fictitious income.
The situation is completely different for owners of owner-occupied residential property. They benefit directly, provided their mortgage burden is low. This shift increases the attractiveness of home ownership and could further fuel demand for owner-occupied apartments and single-family homes.
Price increases in a weak yield environment
The move away from the imputed rental value comes at a time when yields on real estate investments have already fallen back to a low level. Rising demand for owner-occupied residential property is likely to push up prices. A scenario that puts additional pressure on project developers. Their calculations are becoming tighter, while investors and funds are simultaneously confronted with stagnating rental yields.
An increase in prices also has an impact on the valuation of real estate portfolios. Funds with high market values could see lower initial yields as a result. This is a development that institutional investors will be watching closely.
Tax policy countermeasures conceivable
According to estimates, the abolition of the imputed rental value will lead to annual tax losses of around CHF 1.8 billion. One third of this will affect the federal government and two thirds the cantons. Experts such as Emanuel von Graffenried from BN Conseils warn that the cantons could partially compensate for this loss with new taxes.
In particular, the introduction of a cantonal property tax is being discussed. Should such a tax become a reality, not only private owners would be affected, but also institutional investors and real estate funds. The reform would therefore indirectly impose an additional burden on the professional real estate sector, albeit with a time lag.
Long-term market consequences for funds
Even if the abolition of the imputed rental value is not a direct tax issue for funds, it will affect the environment in which they operate. Rising residential property prices, higher land values and a tightening rental market are changing the valuation basis for real estate investments.
Experts expect that residential real estate funds in particular will have to make adjustments to their portfolio structure in the medium term. At the same time, tax policy steps by the cantons will change the attractiveness of individual locations. This is an aspect that is also likely to be important for the investment decisions of institutional investors in the future.