Switzerland: Holiday homes with altitude

New laws passed in Switzerland mean that foreigners can now buy property there, just as developers are building lower-cost properties in secondary locations in a bid to change the country's image, from expensive enclave into accessible investment.

Until recently, it was impossible for foreigners to buy in the country without first becoming Swiss citizens and being resident there for much of each year. But now, an annual quota of about 1,450 foreigners can buy one property each in selected regions, known as cantons.

"Switzerland dislikes property speculators so it has been impossible for people from abroad to buy dozens of properties and sell them quickly or rent them out en masse," explains Frederic Glassey of the Nendaz skiing resort in the Four Valleys, close to Verbier. However, anyone wanting to take advantage of the new situation needs to be wary of rushing in.

Purchasing rules vary considerably from place to place. In some cantons you can buy only a chalet; in others just a house. In some cantons foreigners are banned from reselling property within five years, so investors should assume that they are in for the long haul. The canton of Vaud - which includes the popular lake resort of Montreux - is the most liberal, offers the widest property type, does not restrict resale, and issues the necessary purchase permits within four months.

Transaction costs also vary. In the canton of Valais, which includes the skiing resort of Verbier, the combined costs of notary, land registry fees, and the Swiss equivalent of stamp duty add about 2.5 per cent to a property's sale price. But in Vaud, the same fees add 5 per cent. And throughout Switzerland, property transactions must be made in the name of a private individual, not a business.

There are also annual community fees for water, electricity and insurance, paid to the canton authorities, as well as service charges if you buy a flat or chalet in a large resort. Again, community fees vary across regions.

According to Investors in Property, a firm specialising in homes in skiing areas, interest rates have always been lower in Switzerland than in Britain, and individual loan products, such as "flexible" mortgages, are available, allowing variable payment patterns. Swiss banks will lend up to 65 per cent of the purchase price over 25 years or 50 years. The borrower pays interest every six months on the outstanding capital amount, and can pay off part of the capital, too, if they so wish.

Historically, property prices rise only modestly throughout Switzerland - up just 2.3 per cent in the year to April according to the global price index produced by the UK property consultancy Knight Frank - so the best areas are those where you can rent out for the longest periods of the year. This makes the latest offerings from developers unusually attractive, by Swiss standards.

For example, Résidence Pracondu, at Nendaz in the Four Valleys, a two-hour drive from Geneva, has new apartments from £105,000 to £324,000, with a guaranteed net rental return of 4 per cent per annum for 15 years - in return for you, as owner, accepting heavily restricted personal use of the property while the developer leases it out on your behalf.

"It's likely to be attractive to investors who want to diversify their portfolio away from the usual French skiing resorts," says Larry Levene, the British record producer turned property developer whose firm, Alpine Homes, is building the apartments.

Nendaz is a relatively unknown part of Switzerland, at least to foreigners, hence the low purchase prices and reliable yield. What's more, local areas are attempting to become year-round resorts, leaving established areas such as Verbier as mainly winter-only skiing havens.

Well-established parts of Switzerland are much more expensive - Overseas Homesearch, a UK estate agency selling in Switzerland, has a wide range of apartments on sale in more fashionable areas at prices ranging from £170,000 to £1.55m. Rental yields are therefore likely to be lower.

This rental income is not taxable in Switzerland but is in the UK. However, in most cantons, local inheritance laws apply, so many property advisers suggest that you make a will when you buy the property, and lodge it with Swiss lawyers.

"The regime for developers and buyers is a little more liberal but still nothing like on the scale of elsewhere in the Alps, outside of Switzerland," says Alpine Homes' sales manager, David Lee. "There will always be a certain cachet and novelty to buying here."

Alpine Homes International (www.alpinehomesintl.com)

Overseas Homesearch (www.overseashomesearch; 0800 652 0769)

Fact file

* EU citizens who become Swiss residents can buy more than one property. To be a resident, you need to have an annual income of Sfr50,000 (£22,600) or more, be free of debt, live in the country for at least 180 days a year, pass a test on the Swiss way of life, and base your business interests there.

* Switzerland has more "buying agents" than most European countries because so many foreigners move there temporarily for work reasons. Agents shortlist suitable properties and typically charge 1 per cent - 2.5 per cent of the purchase price.

* Some 65,000 Britons live in Switzerland and form 13 per cent of the population around Lake Geneva.

* Non-Swiss residents need special permission to buy extensive properties with land larger than 3,000sq m.

* Some cantons levy an estate inheritance tax of 7 per cent, even between father and son, if this is how the will designates the inheritance. There is no capital gains tax on property.

* Some foreign residents must renew their residency each year. If they neglect to do so, their ownership becomes illegal.

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