From niche existence to a successful new model
Condominium ownership was originally created for families and the middle class, and is increasingly used as a capital investment.
byClaudio Saputelli and Sandra Wiedmer
18 Aug 2017
At the start of the 20th century, there were only isolated cases of condominium ownership. It lagged behind developments in neighboring countries, where the acute housing shortage after the Second World War favored the rise of this new type of housing.
Scarcity leads to partition
Over time, the strong expansion of settlement areas also led in Switzerland to scarcity in urban areas, a rise in the price of land to build on and so to a change in thinking. There were growing concerns that more and more of the middle class would not be able to afford a single-family house, and that private individuals would be squeezed out of the housing market by legal persons and companies. So within the framework of a partial revision of the Civil Code in 1965, a federal law was passed which regulated the grounds of joint ownership. By dividing real estate into condominiums, it was hoped that it would be possible to transfer acquisition and building costs to several owners, making residential property more affordable again. Additionally, condominium ownership also made it possible for estate distribution for existing properties and for companies to acquire retail, office and storage space.
Established as a type of housing
Despite initial criticism against uniform legislation, this new type of ownership became increasingly popular and was successfully established as a third type of housing. The number of first-time residences in condominium ownership nearly doubled from 1990 to 2000 and rose from 122,000 to 238,000 units. From 2000 to 2015, this figure grew by roughly 80 percent to about 425,000 units. In other words: Since the turn of the millennium, more than one-third of all newly developed apartments were condominiums. The relatively rapid growth in the number of owner-occupied dwellings contributed to the fact that the homeownership climbed from 28 percent in 1970 to more than 37 percent in 2013.
A promising investment?
While still primarily offering the middle class an opportunity to acquire residential property, the rise in land prices led to condominiums penetrating the market for luxury homes. The transfer in ownership of condominiums at prices of over two million Swiss francs at the start of 2013 amounted to about six percent of all transactions; in 2007, it was only two percent.
Owner-occupied apartments are also increasingly used as a form of investment, where residential property is acquired by private individuals for rental purposes. This trend is reflected in the applications for credit at UBS: Since 2007, the share of credit applications for real estate not intended for personal use has increased and currently amounts to about 19 percent of all loan requests. Condominium ownership thus enables less well capitalized private investors to invest directly in the housing market. Condominium ownership is likely, however, to partially lose its aura as an attractive form of investment. The investment success of the past few years was primarily driven by high increases in value, which may not repeat itself. The vacancy risk of a single property makes the low rental income seem unsatisfactory compared to that of an investment in a traditional multifamily dwelling.
Successful model for the future
As a type of housing, on the other hand, condominium ownership is likely to remain very popular. High land prices will also force the division of land use into smaller residential units in the future. Given the targeted concentration of housing throughout Switzerland, condominium ownership is even becoming an ideal in political terms. But precisely older people planning to move from a single-family house into an owner-occupied apartment should be aware that, from then on, they will no longer be the “only master of the house” on every issue.