Construction Replacement instead of renovation?

Individual life plans, densification potential, energy balance and cost efficiency mean replacement is often the preferred option.

by UBS Insights 06 Mar 2020

Picture: UBS

In many parts of Switzerland, replacement construction has increased significantly. According to the latest real estate analyses by consulting firm Wüest Partner, this trend is most apparent in large city centers where around half of all new apartments are replacement constructions. New construction on as-yet undeveloped plots is for obvious reasons an exception.

In terms of regions, this is most obviously true in Zurich, Thun, Nyon and Yverdon. But even in peripheral locations and in medium-sized towns, the amount of replacement construction has grown considerably and is particularly high in popular tourist areas in the canton of Graubünden. One major reason is probably that in touristic regions, the construction of new vacation or second homes is either heavily restricted or not possible at all.

Inward development

In cities, the reasons are different: land is in extremely short supply. At the same time, most construction and zoning regulations allow densification of existing plots. In many cantons, such as St. Gallen, Zurich, and Zug, new zoning of development land is virtually impossible or is subject to heavy restrictions. The vast majority of regions have designed their structure plans, land-use planning and zoning regulations according to the maxim “inward development.” For owners of existing buildings, this is an advantage because today’s regulations allow a small apartment block or a project with row houses to be built on many building plots with a detached home from the 1960s or 1970s.

Reasons for replacement construction

There are three solid reasons for replacement construction: first, they enable a major increase in usable space on the same area of land. For owners, the potential is considerable. If the properties are rental apartments, yields increase significantly. Second: sometimes older homes are in such poor condition that there’s no better alternative. Third: in today’s environment, energy efficiency is a big factor. Energy consumption for heating and hot water is four to five times lower for a high-quality new construction than for a home from the 1970s.

However, owners must also consider the expense and total costs involved. The planning, demolition, disposal and construction of a new home can be expensive. As a rule of thumb, the construction costs alone for a house are 3,200 francs per square meter.

Working out how much flexibility you have

Before architects start drawing up their plans and visions for a construction plot, the situation regarding construction regulations must first be thoroughly researched. Although preservation orders do not apply to most privately owned buildings, many places of historical interest in cities and medium-sized towns are protected to some degree. In such locations – and as with listed buildings – the possibilities of making significant changes are limited. More and more cantons and cities are making information on building and zone regulations, historic monuments and inventories of historic buildings publicly available on their online geoportals. If you cannot find the information you’re looking for, try contacting the responsible building authority directly.

In most cases, only once you have this information is it worth consulting an architect for a thorough assessment of applicable building regulations, and an initial study of different options. Architects are trained to explore the best options allowed by building and zone regulations and to put forward concrete proposals.

Custom construction financing

As soon as a certain preliminary decision becomes clear, you’ll need to estimate costs and arrange the financing. To do so, contact your UBS client advisor at an early stage. For major renovations, new construction or replacement construction, we recommend UBS Building Financing. A UBS Building Account can be used to pay current invoices from architects, construction companies and contractors. Our financing solution is based on your individual needs and gives you full cost transparency during every phase of the project.

Replacement construction: 10-point checklist

  • Condition analysis: thorough examination of the existing building
  • Construction law: analysis in terms of building regulations, feasibility with regard to zoning regulations, etc.
  • Strategy: definition of long-term goals and maximum acceptable costs
  • Architect: work commission and exact specifications (agreed services, cost ceiling, contract)
  • Preliminary project: initial proposals and recommendations from architect; preliminary project with cost estimate
  • Planning application: submitted by the architect to the building authority
  • Invitations to tender: invitations to tender and assignment of contracts to construction companies and contractors
  • Construction: start of construction work as soon as project planning is complete (organization, schedule, construction management)
  • Finalization: acceptance of work, correction of any defects, start of guarantee periods
  • Mortgage: conversion of building financing (for execution phase) into a mortgage