Each sector has its own specialist terminology. Learn the exact meaning of property terms. And how floor areas are precisely defined.
Repayment of a mortgage in instalments. Whereas generally speaking, the 1st mortgage in Switzerland is not paid off, the 2nd mortgage is usually repaid over approx. 20 years or amortised annually with a percentage of the blanket mortgage. Whether amortisation pays off depends on the overall tax situation and the alternative investment possibilities.
The ancillary area is that part of the usable floor area that when added to the main usable area constitutes the usable area. It is defined according to the building's assigned purpose and intended use.
The ancillary areas in a residential building may include:
• laundry rooms,
• attics and cellars,
• storage rooms,
• car parking spaces,
• air-raid shelters and
• rubbish collection areas
Costs of contractually agreed services by the landlord not included in the rent – such as heating, hot water, cleaning stairs, house management, electricity, water/sewage, washing machines, rubbish collection, gardening, building insurance and administration. The ancillary costs for a given period are paid by tenants in the form of a lump sum or paid in advance in the form of down payments. The ancillary costs must correspond to the expenses actually incurred. The landlord can apply the average value over a period of three years.
Debts incurred by the owner vis-à-vis banks and other creditors – in the case of property they take the form of mortgages and loans.
Right recorded in the land register to construct a building on third-party land. The grantor of the building right (land owner) receives an annual ground rent from the assignee of the building right (property owner). The law limits the duration of the building right to a maximum of 99 years. Once this period has expired the building reverts to the grantor of the building right in return for fair compensation. A building lease enables a home to be purchased more economically since the plot is not acquired.
Estimated or actual cost of constructing a similar building (similar construction materials, similar design) on the valuation date.
The building volume ratio defines the relationship between the effective aboveground building volume and the imputable land area. The calculation method for both parameters is stipulated by cantonal and municipal laws.
The capitalisation rate is the ratio in percentage terms used for valuation purposes with the aid of which the income value is obtained from the rental value. The capitalisation rate is based on the capital costs (mortgages) and the running costs – operating costs, maintenance costs, administrative expenses and risk, depreciation, amortisation.
The cash value may be likened to the income value. It is based on the actual or estimated rental income. Capitalisation is not performed on an indefinite basis as usually occurs in income value calculations but is limited in time to the period of use of the property due to be appraised.
The circulation area is the part of the net floor area exclusively used for access. In residential buildings the circulation area may for example include the areas outside the apartment corresponding to corridors, entrance halls, stairs, ramps and lift shafts.
Percentage of the market value of a property that is mortgaged.
Under normal conditions the upper limit for the 1st mortgage lies at 65 percent of the market value of a property, for the 2nd mortgage this figure corresponds to a further 15 percent of the market value.
The basis for loans secured by the property is provided by the notarised purchase price or the estimated market value.
A type of mortgage that combines elements of fixed-rate and variable-rate mortgages, the remaining portion is based on the Libor interest rate. The flexible distribution between a variable and a fixed component allows the borrower to individually adjust the interest risk.
A form of ownership in which owners are co-owners of a property. They possess special rights to certain units such as apartments, cellars, garages etc. They exercise sole ownership rights in respect of these units. The common areas of the property are not governed by the special rights. The rights and duties of owners under condominium ownership are laid down in the use and administration rules.
The current building value corresponds to the building value less depreciation.
Value of building as new less depreciation.
The discounted cash flow method (DCF) estimates the net income of a building in the future. It is also known as the operating income or net cash flow. The estimates and calculations are performed over a period of 5-10 years (usually 10 years), even over longer periods in certain cases. A salvage or market value is determined for the remaining useful life – referred to as the residual value.
In bookkeeping and cost accounting the value of a building is reduced on a scheduled basis. Depreciation takes into account the building's fall in value due to age.
Fall in value of a building over time in comparison with a similar newly constructed building.
This is understood to refer to depreciation that occurs following new developments in construction techniques in terms of construction materials, comfort and new construction methods which additionally reduce the current value of a building.
Value-impairing factors include:
• architecture that no longer meets current requirements or uneconomical architecture – floor plan, rooms that are too small, height between floors, ceiling heights, design etc.
• a failure to keep up to date in terms of healthy residential and workplace environments; other aspects influencing use or residual life.
Economic depreciation must be taken into account when determining the current value.
Generally speaking, anyone without sufficient savings to finance 20 percent of the investment amount must obtain additional own funds. These may take the form of loans from relatives or friends, early withdrawals of inheritances or donations or retirement funds from the 2nd and 3rd pillars of the Swiss social security system. In the case of owner-occupied homes and under certain conditions, the law for the promotion of home ownership allows owners to use part of the capital saved under occupational and private pension schemes.
Mortgage with a fixed interest rate and a fixed term – usually between two and ten years. The borrower does not bear any risk of interest rate increases but nor does he/she benefit from any falls in interest rates during the mortgage term.
The floor area is the ground-plan area of the accessible floors covered and enclosed on all sides including the structural areas. Areas consisting of cavities below the lowest accessible floor are not included in the floor area.
The floor area comprises:
• the net floor area and
• the structural area
When granting loans lenders apply two main criteria: first, the buyer must finance at least 20 percent of the purchase price using his/her own funds. Second, the annual financial burden stemming from the purchase must not exceed between 30 and 33 percent of the buyer's gross income. Lenders check the creditworthiness of the building and the borrower. Here, different guidelines are followed depending on the particular credit institution.
The sum of all aboveground and underground floor areas including walls, less any areas that cannot be used for residential purposes or work.
The area comprising all living areas, ancillary areas, corridors and stairs within a home; however, not outside the home. Hence stairwells, terraces, open balconies and non-habitable cellar or attic areas are excluded.
The house equipment area is the section of the net floor area available for house equipment.
The house equipment area includes areas such as
• rooms for house equipment,
• motor rooms for lifts and conveyor systems,
• supply and disposal shafts, mechanical floors, supply pipes and sewage pipes and
• tank rooms
Technical depreciation: in the case of the depreciation of a building and the surroundings this refers to value reductions that occur after construction as a result of age, wear and tear and for other reasons.
The imputable floor area is the total of all the areas on the ground floor and the upper floors – including stairwells and access balconies, provided they are used for access; however, emergency stairs are excluded as are the cross sections of interior walls, not however exterior walls. Areas in rooms situated below the ground floor are included in the imputable floor area provided they can be used for residential or commercial purposes.
The imputed rental value is a fictitious value used for tax purposes that is meant to put homeowners and tenants on an equal footing from a tax point of view. Owners of owner-occupied homes must declare the imputed rental value as taxable income. In return, they can deduct their debt interest and part of the maintenance costs.
On 16 May 2004 Swiss voters voted against a change in the system for taxing residential property.
Those components of the investment amount that are not included in the land value or in the value of the building – e.g. gardening and sewage work, architect's fees, any interest incurred during the construction period and insurance premiums as well as property transfer taxes, expenses and commissions.
Property value determined on the basis of rental income. In the income value method the annual rental income is divided by a suitable capitalisation rate. For multi-family dwellings and depending on the type and age of the building, the capitalisation rate is between 2 and 3 percentage points above the current interest rate for a 1st mortgage. In the present value method all the future net rental revenues discounted when the estimate is performed are added up.
In the case of indirect amortisation the amortisation amount is not repaid to the lender but regularly paid into a life insurance policy or into the tied pension system (pillar 3a of the Swiss social security system) – to a bank (pension account) or to an insurance company (pension policy). This means that the mortgage debt is not reduced and the tax-deductible interest remains constantly high. Together with the tax-free interest payments from the investment, the reduction in debt interest attained by direct amortisation is more than compensated.
Appraisal of a building for the purpose of setting the fire insurance premium and the insured sum in case of an insured event. The land value is not included in the insurance value because it is not destroyed in insured events caused by fire or natural hazards. Nowadays most fire insurance companies under public law cover the replacement value of the building. Buildings are seldom insured at their current value.
The cost of borrowing capital. The mortgage interest rate varies in accordance with market conditions, i.e. according to the banks' refinancing conditions. The latter increasingly refer to the European capital market. As a rule, banks demand higher interest rates for 2nd mortgages, for secondary residences/holiday homes, for commercial and industrial buildings and for land mortgages.
The real value corresponds to the total of the building's current value, the incidental building costs, the environmental costs and the land value.
The total costs incurred during the purchase of an existing property or the construction of a new building. Upon purchase other costs are due in addition to the purchase price: taxes, fees, expenses and commissions related to the change of ownership. In the case of the purchase of a new property the total costs comprise the land value, the value of the building and the incidental building costs.
In this form of ownership all the owners have a participation in the entire property. Their capacity is that of a single community and they can only act jointly. As in the case of co-ownership freely usable parts are excluded. Joint owners take the form of specific associations of persons governed by the law – such as marital communities of properties, simple partnerships, communities of heirs etc.
Official record of the rights and duties existing on plots.
The absolute land value (undeveloped land value) is based on the land values for developed plots in similar locations, while taking into account any construction use and economic use. It is determined by applying the purchase price or by means of price comparisons.
The interest rate of the Libor mortgage is based on the London Interbank Offered Rate. The way in which the interest rate is set is transparent and in line with the market, but it is subject to large fluctuations. By means of an interest ceiling, known as a CAP, borrowers can protect themselves against increasing interest rates. A premium, however, is payable in return, which depends on the amount and the duration of the protection. A minimum interest rate can be agreed upon in order to lower the premium (FLOOR).
The locational rating method is based on the realisation that, generally speaking, there is a specific value relationship between the value of a building and the value of the land that allows the land value in relation to the total value or in relation to the value of the building to be determined. The laws governing the relationship between the land value and the value of the building have been known for a long time. So the rule is that in good locations the share represented by the land value in the total property is higher than in bad locations. Expensive buildings are usually situated in prominent locations.
The main usable area is that part of the usable area in which the building is used for its assigned purpose in the narrowest sense of the term.
Rectification of defects caused by wear and tear and the weather so as to maintain the good condition of the property.
The price that is actually obtained for a property or which would have been obtained under normal circumstances. When property is appraised the market value of developed plots is obtained from the real value and the income value, both calculated separately. The market value of a home usually corresponds to its real value. In the case of rented properties (income properties) the market value is strongly influenced by the income value: the more the real value differs from the income value, the greater the weighting applied to the income value in the mixed calculation.
Long-term loan to a borrower who owns or acquires a property. A mortgage is a claim secured by a security interest in a plot recorded in a land register. The borrower pays the lender a mortgage interest. In the case of a mortgage with the highest priority ranking the lender runs the least risk because in the event of a compulsory sale this debt is repaid first of all. The interest rate for mortgages with a no. 2 priority ranking are accordingly higher.
VZ Vermögenszentrum calculates its own mortgage index representing the evolution of interest rates since 1985. The VZ mortgage index is based on interest rates offered by all of the most important mortgage providers and compares the evolution of short-term and long-term mortgage interest rates with a risk-free interest rate.
The net floor area is the section of the floor area between the enclosing or interior construction elements. The net floor area comprises:
• the usable floor area,
• the circulation area and
• the house equipment area
The open areas ratio represents the ratio of the open areas set aside for playing and resting, parks and gardens with respect to the buildings incl. the area of the plot occupied by the aboveground parking spaces. The calculation of both parameters is governed by cantonal and municipal laws.
Share of the total investment amount covered by the buyer: the difference between the value of the property, also referred to as the market value or the investment amount, and the borrowed funds. Generally speaking, lenders demand at least 20 percent of the investment amount.
Property in which the owner himself lives.
Delimited area of land with or without buildings. Apart from real estate the Swiss Civil Code also includes co-ownership shares including condominium ownership or independent and permanent rights (e.g. building leases) amongst plots.
A given plot may comprise:
• a single parcel,
• several parcels and
• parts of one or several parcels
The area of the plot is divided up into
• the building floor area and
• the surrounding area
A right allowing entry into the purchase contract instead of a third party in the event of a sale at a later date. In the case of a limited pre-emption the purchase price is set in advance.
Until the end of 2001 the Act for the Promotion of Homes and Ownership (WEG) provided the statutory basis for the promotion of home ownership in the Swiss Confederation. Under this framework the Swiss Confederation guaranteed up to 90 percent of the investment amount and so 10 percent of own funds was sufficient. In addition, it unburdened owners during the initial years with a repayable advance. The WEG continues to apply to existing transactions.
The Act for the Promotion of Residential Property (WFG) in force since 2003 has applied to new transactions. However, direct aid was suspended until the end of 2008 and so at present the only aid available for the promotion of home ownership is the counter-guarantee offered by the Swiss mortgage guarantee cooperatives HBW/CRCI. The guarantee offered by these organisations enables households with limited own funds to secure mortgages of up to 90 percent of the investment or purchase costs at an interest rate applicable to a 1st mortgage, provided the building's costs and assets are within predefined limits. Under certain conditions pension funds from the 2nd and 3rd pillar of the Swiss social security system may be used as own funds for owner-occupied homes.
Property in Switzerland is taxed both upon change of ownership (purchase, inheritance, donation) and during ownership. Property transfer tax and real estate transfer tax apply in the case of a change of ownership. The taxable income in the case of owners of owner-occupied homes is increased by a fictitious income known as the imputed rental value. Maintenance costs and interest charges can be deduced from the imputed rental value. The taxable assets increase by the taxable value of the property, less any sums owing.
Developed or undeveloped parcel of land (plot).
Cantons and/or municipalities tax the difference between sales proceeds and the investment costs of plots.
Estimated intrinsic value which is made up of the value of the building (the building's current value), the incidental building costs and the land value. The real value corresponds to the replacement value of the property in the condition in which it was when the appraisal took place.
The relative land value is related to the value of an existing or planned building use. It depends on the locational rating of a plot.
The capital in the renewal fund is the property of the condominium. It is recommended that the pro rata contribution to the fund is mentioned in the market valuation report. Depending on the actual contribution to the fund it may have an impact on the market value. If this is sufficient for necessary, ordinary maintenance then it is not taken into account. However if it emerges from the funds in the renewal fund that important renovation work can be carried out with it then it must be taken into account in the market value.
The gross rental income corresponds to the rent agreed upon in the contract less ancillary costs and payment defaults. The net rent is obtained from the rental income less interest on borrowings, operating expenses and maintenance expenses but without deducting depreciation, interest on own funds, the employer's salary and the risk premium.
The rental value corresponds to the net annual rent for buildings and structural works which it is assumed can be obtained on a sustained basis given the purpose of the valuation and the legal circumstances.
In this form of ownership the owner has the sole and exclusive right of disposal over a property.
A type of mortgage in which the interest payments are distributed according to a certain key over a fixed term. In order to reduce the financial burden immediately after the purchase, the borrower is granted a reduction in the interest rate during the initial years with respect to the interest rate for variable-rate mortgages, which the borrower makes up for later on by corresponding increases in the interest rate.
See stepped mortgage
The structural area is the ground-plan area of the interior and enclosing construction elements lying within the floor area such as exterior and interior walls, columns and parapets.
The clear cross-sections of shafts and flues as well as door and window recesses are included provided they are not assigned to the net floor area. Construction elements such as mobile partition walls and wall units are not regarded as construction elements for the purpose of this definition.
The structural area is divided up into
• the load-bearing structural area and
• the non-load-bearing structural area
The surrounding area is the section of the plot's area that is not occupied by parts of the building. This essentially depends on the construction project.
Areas or structures lying completely or partially in the ground are regarded as part of the surrounding area provided they can be planted or transited on foot or using a vehicle and are connected with the adjacent land.
The surrounding area comprises
• the modified surrounding area (hard surfaces or green areas) and
• the non-modified surrounding area
Appraisal of property according to the cantonal tax law. The appraisal is the assessment basis for the wealth tax, the real estate tax, the minimal tax, the inheritance tax and the gift tax. It also affects income tax through the calculation of the imputed rental value.
Contractually agreed duration of an agreement, for example a mortgage agreement. The conditions agreed upon at the time of its conclusion – interest rate, interest rate adjustments, payment interval, amortisation, termination etc. – apply throughout the entire term of the agreement.
Whereas a fixed-term mortgage must be repaid or renewed once the agreed term has expired, a variable-rate mortgage remains in force until termination or full repayment.
Legal transfer of real estate. A tax is levied when the transfer takes place. The property transfer tax has developed from the notary's fees and the land register tax and is levied by cantons or municipalities.
The market value of undeveloped land. The undeveloped land value for undeveloped plots is calculated by referring to the difference between the building value appraisal and the income value appraisal. The locational rating method is based on the following observation: there is a virtually identical relationship between the land value and the building value for properties with matching location characteristics. By assigning the plot a locational rating and estimating the building value, the land value can be inferred.
The usable floor area is the part of the net floor area that is used for the building's assigned purpose and intended use in the broadest sense of the term.
The usable floor area comprises
• the main usable area and
• the ancillary area
It gives the beneficiary the unlimited right of use of a third-party asset.
The utilisation factor represents the ratio between the building's imputable floor area and the imputable land area. The calculation of both parameters is governed by cantonal and municipal laws.
To obtain an approximate figure for the building value reference is either made to the actual construction costs or the building's volume is estimated with the usual cubic metre prices for new constructions, less depreciation.
A classic type of mortgage with an open-ended term. Its interest rate rises and falls together with interest rates generally. A variable-rate mortgage is suitable for someone who expects constant or falling interest payments or who only requires bridge financing.