Direct Residential Real Estate Funds in Switzerland

Real Estate
1

French infos (change lang for german) Restriction d'accès aux produits de placement

In prospectus it is said that (translated from french)

“The fund invests directly in real estate. Taxation is therefore happens only at the level of the fund. Private investors are exempt from wealth tax for the invested share and income tax on dividends.”

Does this fund sounds like a good idea? Is there really a way to avoid taxation on the dividends this way?

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You avoid wealth and income tax with this product but the tax is paid at a flat rate by the fund. If you have a high wealth and income it is probably a good investment but if you live in a canton with low taxation it is probably not the best choice.
In this document all the funds with two stars are free from tax for the holder. You can see that the funds on which you have to pay tax have an higher dividend because it is before tax.

3

According to the fact sheet of the CS Real Estate Fund LivingPlus:

The fund takes direct ownership of the properties; unit holders are therefore not liable for Swiss income or wealth tax on the portion of the fund’s assets that is invested in real estate.

In view of the wealth tax (e.g. in Vaud canton…), obviously, one could be interested with such a found at the end of a given year (buy) and beginning of the following (sell). Has anybody studied that more deeply? Any major cons? I still haven’t done math checking whether it’s worth it (spread, charges).
The issue I am aware of is that by buying and selling assets in a time frame shorter than 6 months, I may be considered a professional trader. Has anybody had experience with such cases?

4

How much is your overall and your marginal wealth tax rate?

5

The wealth tax tables can be found under the link. Keep in mind, that one needs to multiply this by canton and commune coefficients, so for Lausanne in Vaud (154.5% and 79% respectively), we get 2.335 coefficient.

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I know, but I wanted to know how much wealth tax you pay.

I guess for most people here the biggest possible tax “savings” come earnings that come from rising prices of US stocks (only dividends are taxed)

In Zurich wealth tax is around 2k (not married, no children) if you own 1 Million. At the same time 1 Million should give you around 20k Dividend (taxed) and hopefully 30k in rising stock prices (tax free)
Lets say your RE gives you the same 50k income, you pay tax on the full amount. The wealth tax you save is < the income tax you lose.

On the other hand if you own 4 Million wealth tax becomes more important. This is why I asked.

Thinking of it, the CS RE fund price will also rise. My example was probably too simple. If I were you, I’d run an Excel file

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A reduced tax value is calculated by the fund and the investor pays wealth tax on it. All elements related to the properties are not taxable.

The fund “Solvalor” is a good example (CH0002785456). The NAV at year end was approx. CHF 270, while the tax value is zero.

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Regarding these tax advantaged RE funds. Do I understand correctly then that the"direct holding" funds are taxed, just on the fund side rather than the investor side?

If so, what’s the rate of tax applied?

If it’s higher than my marginal income/wealth tax then i guess it’s not actually advantageous.

On the other hand if it’s lower then it could be interesting.

Does anyone have more info how this works?

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4.25% for federal tax (art. 49 al. 2 + art. 71 LIFD) + cantonal/communal tax. The total tax is approx. 15%

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Something to note here is that for businesses, tax payments are deductible expenses, so the effective tax rate will be lower than the sticker rate.

15

Hello,
Does anyone know of a swiss-based SCPI ?

Many thanks

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It does not exist per se for retail investors.

The more similar would be CH investment funds holding real estate directly. You’ll find plenty of posts about it on this forum.

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And for the tax angle, is the idea to go for non-direct ownership so the income and wealth tax is assessed directly on the investor and benefit from a lower wealth tax base compared to actual market value?

18

I tried to look into Residential real estate funds few months back. What i found quite weird that they trade at a lot premium versus their NAV (which I don’t understand)and have higher TERs too (which I understand due to high cost of managing real estate)

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What tax advantages do you mean?

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Direct ownership (no wealth/income tax to you, reduced in-fund taxation compared to typical income tax)

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@IL-BOSCO @REandSTOCK

I’m investigating RE funds as a way to mitigate wealth tax. Am I right in thinking that it is possible to buy certain RE funds holding RE with ‘direct’ ownership and that the basis for wealth tax is decreased. Can someone give an example of such a fund and what the numbers are?

e.g. if I buy fund X and invest $100 into it (market value). The value of my holding in X is only $60 for wealth tax purposes (so 60% basis). I’m trying to understand what kind of reduction in basis can be achieved.

Furthermore, the fund pays out $3 per year in distributions. I undestand this is non-taxable.

I hear people mentioning wealth tax and income tax benefits for ‘direct’ RE, but trying to work out what this actually means and how much wealth tax can be offset.

I found one doing a google search: " Patrimonium Swiss Real Estate Fund (hereinafter “PSREF”) publishes its tax value as at 31.12.2022 with a price of CHF 0.91 per share for a NAV as at 30.09.2022 of CHF 148.44." So a very low 0.61% basis. Is this typical for RE funds?

Now of course, saving on wealth tax is pretty useless if you have massive capital losses from over-priced or under-performing funds, but on the face of it, this could be an attractive alternative to bonds provided the capital value is secure.

My questions are:

  1. Did RE funds significantly re-rate as a result of the SNB interest rate hikes?
  2. Are they yet at attractive yields/valuations (I expect maybe they still have high valuations)?
  3. Which funds are you investing in, which I can use as a starting point for further research?
  4. What is the justification/rationale for these tax advantages?
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22

I second what @oslasho wrote (he is certainly more knowledgeable/experienced on this topic though).

  1. Everyone seems somewhat “secretive” on this topic and only tells one to refer to that csam document which shows which funds hold RE “direkt”. Fair enough. Anyway I’ll out myself and say I have bought some BALSP and HOSP recently for a start/test. You can find both on Swissquote like a stock, info like trends, dividend, etc.
    I chose BALSP for residential hoping it’ll be more “stable” (commercial has already come down a lot, but I still see many many and always more offices empty in my city, and there may be more pain. Unfortunately the residential is not in great locations, but this meant the Agio was not 30-50% like some other RE funds.
    HOSP is hotels, schools and clinics (more stable than commercial (maybe?)). One school-company rents a bit high share of the total fund property, so that’s a bit of a risk if they go belly up.
  2. HOSP has zero tax value and zero income on my tax return, BALSP shows about a 1% value and zero income.

I’m also buying so that hopefully the wealth-basis for calculating AHV-Beiträge for early retirees will exclude these amounts invested. But I’m not so far as having that confirmed yet IRL.
Maybe @oslasho could confirm my/this understanding? The AHV office uses ones Reinvermögen from the Tax Declaration, which exclude these direct RE funds, correct?

  1. See the price trends on Swissquote, most are significantly off their ATHs.
  2. I can only judge the “dividend yield”, this is OKish, around 3% for many funds. Valuation-wise, ja, case-to-case…

Look forward to hear your critical thoughts, esp. maybe of other direct RE funds you think are good yield/value.

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23

The “justification” is the law. See art. 10 al. 2 LIFD, art. 20 al.1 let. e LIFD a contrario, art. 7 al.3 LHID a contrario, art. 13 al. 3 LHID

Can’t answer this question. Especially because it depends on your potential tax savings as well.

Yes, the value of the share for the wealth tax can go near 0.

Finally, I don’t give the name of the funds I own, the same way I don’t give the name of the companies I own

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YES! Taxation for funds with direct holdings is close to zero.
There’s a market report from CS which gives you a good first overview on topics such as

  • TER
  • which fund is direct / indirect
  • dividend yield, etc.

I somehow can’t insert the correct URL but you can easily find the following docs using google:

https://am.credit-suisse.com › …PDF
Schweizer Immobilienfonds Kennzahlen - Dezember 2023

Another publicly available source to start with is the following:

MV Invest AG
https://www.mvinvest.ch › i…PDF
SCHWEIZERISCHE IMMOBILIENFONDS / FONDS …

I personally wouldn’t invest in themed funds such as Streetbox or CS hospitality. These are new RE classes with a short track record and - in case of the hospitality fund - weak performance.

I’m personally not invested in RE funds because we’re homeowners and most of our money is in RE already. Also, I work in the industry so a massive downturn (which I don’t expect) could also threaten my job/salary…

Still, I think that direct funds are a great alternative to bonds albeit with higher risk/return.

Some thoughts: Residential funds provide lower dividend yields. I’d go for a mixed fund (residential and office) or for a residential fund in B and C locations if you want to get some more risk/return.

Some funds I would check
-Residentia
-Realstone
-Rothschild (low TER, exposure in Geneva, excellent locations, old properties, probbly lots of potential to increase rent/dividend on the long run)
-CS Ref Living Plus (merger with UBS is not a problem in my opinion)
-ZIF Immobilien direkt Schweiz (excellent locations, mainly Zurich, rather old buildings, a lot of potential to increase rents in the future, but low dividend yield)

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