The abolition of the imputed rental value means that maintenance costs are no longer tax deductible. Old buildings are therefore losing value relative to new buildings. Properties in poor condition have already lost value in recent years.

With the abolition of the imputed rental value from 2028 at the earliest, property maintenance expenses will no longer be tax deductible. As a result, old buildings will lose value compared to new buildings. In a recent study, Matthias Holzhey, economist at UBS Switzerland AG, estimates that around one-third of single-family homes and condominiums are in need of substantial renovation. Properties built between 1960 and 1990 are particularly affected.

Price reduction for older buildings

According to the Swiss Real Estate Datapool (SRED), new condominiums currently sell for an average of CHF 1.5 million, or around CHF 13,000 per square meter. For condominiums in very poor condition, the discount is just under CHF 500,000. The largest discounts apply to buildings from the 1970s that are in very poor structural condition.

In absolute terms, renovations are more expensive for single-family homes than for condominiums. The average purchase price for new single-family homes is around CHF 2.3 million. A single-family home in very poor condition in a comparable location costs around CHF 800,000 less. However, if the building fabric is poor, a replacement building is often more attractive than renovation.

Higher renovation costs, higher price difference

The price differences between new residential units and those in need of renovation depend heavily on the development of construction costs. For example, the sharp rise in renovation costs in 2022 and 2023 by a total of around 15% led to a comparable increase in the discount for old buildings. Over the past ten years, there has also been increasing caution when purchasing condominiums in very poor structural condition, most of which date from the 1970s.

Limited overall effect on the real estate market

Overall, around 80% of renovation investments are likely to be tax-deductible under current law. If this tax deduction is abolished, this will result in renovations becoming 10% to 25% more expensive, depending on the marginal tax rate. The additional price reduction for old buildings is therefore likely to be in the region of 5% of current purchase prices. The effect on the overall market therefore remains limited. In addition, the absolute negative price effect is partially offset by the elimination of the imputed rental value in an environment of low mortgage interest rates.

High-tax cantons with low land values most affected

Regionally, properties in high-tax cantons with low land values are most affected: there, the additional decline in value compared to a new property can be as much as 10%. In the case of dilapidated single-family homes with poor building fabric, the elimination of the tax deduction for impairment plays a minor role. This is because investments in a replacement new building are considered value-adding production costs and, apart from demolition costs, are generally not deductible under the existing taxation system.