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Alpine property prices hold up despite the credit crunch

November 24, 2008 nnyq.com edit The credit crunch has spread from the US to the UK and some lenders in Europe have also tightened lending criteria and raised rates. Although property prices in the UK and in some popular overseas destinations such as Spain have fallen they have held up well in the Alps.

Property prices in the Alps have hardly been affected by the credit crunch. The economy in the UK during the crash between 1990 and 1992 was in a much worse state then than it is now and when interest rates in the UK hit 15% the economy virtually ground to a halt. Although the volume of sales at that time fell dramatically, property prices in the Alps were hardly affected. Some companies did lose out to repossessions in the 1990’2 for ski property at the very bottom of the market such as apartments and poor quality property in second rate resorts, however the Swiss market was particularly robust. Most potential purchasers who buy in Switzerland have good liquidity and are buying for the long term so when things get tough they do not need to sell.

The Alps has not experienced the huge building boom which has created an over supply of new property and falling prices in much of Spain. It is notoriously difficult to get planning permission to build in the Alps as much of the land is protected and the ecologists and locals lobby fiercely against development. The demand for property in ski resorts has been so strong that almost all property is sold off-plan so there are very few finished unsold apartments (and virtually no chalets) sitting there unsold. Buyers looking to snap up a bargain are going to be disappointed as there is no surplus property in the better resorts.

The Swiss ski property market is probably one of the strongest and safest. Switzerland has always been regarded as a particularly safe investment - when the financial markets look volatile then gold and the Swiss franc are traditionally safe havens.

House prices in the UK fell by 1.8% in the last 3 months according to Nationwide, but this is the first fall for 12 years and prices had risen by a staggering 45% in the past 5 years. What goes up must come down, and these continual price increases could not be sustained forever. Some of the “hot spots” in Europe have also been affected and agents selling in the Costa’s in Spain report that prices have fallen by as much as 20% since last summer.

The Swiss have always restricted sales of property to foreigners and this has succeeded in keeping prices artificially low even in Canton Valais where demand for ski property is extremely high. As prices did not leap up they will not come tumbling down either. High altitude snow sure resorts such as Saas Fee are the safest of all and still represent good value as a result of the “Lex Koller”, the law which has prevented foreigners from snapping up all the properties and driving up prices.

The weakening pound which lost about 15% of its value against the euro in the first quarter of the year has had an effect on overseas property sales but the pound has now rallied, interest rates remain low if you are borrowing in euros or Swiss francs for the purchase of your ski property. If you are renting your property then you do not have a currency exposure as your CHF or euro income will pay your mortgage. The strength of the Swiss franc is also one of the major reasons why clients want to invest in Switzerland. It is never a bad idea to own property in one of the worlds most secure economies in a “safe haven” currency. The high standard of living, low crime rates and low taxes are other reasons why there is so much demand from UK residents looking to buy property in Switzerland.

There has also been some good news in the last budget. Capital gains tax on selling second homes has gone down from a whopping 40% (for a higher rate tax payer) to just 18% and this applies to overseas as well as UK property. You may be liable for tax in the foreign country in which the property is situated but many European countries have tapering taxes which reduce to zero after a few years. In Italy there is no capital gains tax after 5 years, in Austria it is 10 years and in Switzerland the tax reduces to 7% if you have owned the property for 24 years.

So how will the ski property market do this year and what should you buy? It’s a time when quality stands out - the best resorts will always be the most resilient and the top end of the market will also continue to do well. High altitude snow-sure resorts such as Saas Fee and Zermatt in Switzerland, spa resorts like BadHofgastein in Austria and all year round resorts such as Villars which are suitable for second homes or retirement are always going to be safe bets.