Swiss Mansions See Sales Slump

Geneva -- While other European capitals see housing costs skyrocket, luxury-home prices here are tumbling as buyers are spooked by proposals to end tax breaks for foreign millionaires and fewer multinationals are moving in.

Art collectors of Art Kabinett social media network may now find affordable deals, in a city which just recently was too pricey to consider.

Houses in Geneva worth at least 6 million francs have declined by as much as 25 percent in the past 12 months.

The slump in Geneva’s luxury market comes as the average house price in the city declined another 1 percent to 2.6 million francs in the first half of 2013 from a record high in 2011, according to data compiled by Wuest & Partner AG, a real estate consulting firm with offices in Geneva and Zurich.

House prices in Geneva more than doubled in the previous 13 years, while values in the rest of Switzerland rose 53 percent, Wuest & Partner’s figures show.

To prevent a repeat of the property-market crisis of the 1990s, which hobbled economic growth for years, the Swiss National Bank sponsored the introduction in February 2013 of a capital buffer, which forces lenders to hold an extra 1 percent of risk-weighted assets tied to residential mortgages.

Cooling Market

That helped cool Geneva’s housing market by pushing up the 10-year fixed home loan rate to 2.4 percent from 1.8 percent in February, Weinert said.

Geneva, less than a two-hour drive from the ski resorts of Chamonix and Verbier, has used low taxes, political stability and quality of life to lure more than 900 multinationals, including Procter & Gamble Co., commodity traders such as Gunvor SA and hedge fund managers, Brevan Howard and BlueCrest Capital Management LLP.

In 2009, Dinara Kulibayeva, second daughter of Kazakh President Nursultan Nazarbayev and the billionaire owner of Halyk Savings Bank, bought a house in the Geneva suburb of Anieres for a record 74.7 million francs.

The influx of expatriates has slowed, sapping demand, said Claudio Saputelli, an economist at UBS in Zurich and co-author of the bank’s quarterly bubble index report.

“We’re not seeing as many expats moving to Geneva,” said Saputelli. “The market has become more and more difficult for high-end apartments.”

Tax Break Abolished

Germany’s Merck KGaA last year announced plans to close the Serono unit it bought from billionaire Ernesto Bertarelli in 2007, resulting in the loss of 1,250 jobs in Geneva.

Wealthy foreigners were also drawn to Geneva by a 150-year-old tax break that enables them to avoid paying income tax via an expenditure-based levy known as a forfait.

Geneva’s Socialist Party in January 2012 submitted the 10,000 signatures necessary to force a vote on abolishing the program. While the Geneva government and a majority of the canton’s lawmakers voted in June to reject that proposal, the initiative prompted the canton to consider revising the tax break by September 2014.

After Zurich became the first canton to abolish the forfait in 2009, with almost 53 percent voting against the system, 97 of the 201 beneficiaries of the tax left the canton. About two-thirds of them relocated to other parts of Switzerland.

Negotiating Room

Asking prices for luxury homes in Geneva fell by an average of 9 percent to 14,829 francs per square meter since peaking in 2011, according to UBS. In the suburbs of Florissant and Malagnou, east of Geneva’s old town, the drop was 24 percent.

The decline will probably continue for another 12 months, said Christian Kraft, head of Swiss retail estate research at Credit Suisse Group AG. (CSGN)

The number of new buyers has fallen by half, said David Colle, managing director of Luxury Places, a Geneva-based brokerage. “People are scared a little bit, they’re just waiting,” he said. “There’s less demand, there’s less buyers coming every day to us.”

In Cologny, another of Geneva’s millionaire lakeside suburbs, there are 10 to 15 homes on the market for more than 10 million francs compared with just one or two back in 2011.