Is Geneva losing some of its allure?

Expatriates sometimes refer to Geneva as a gilded cage – it is a small city with an international feel, nesting between the Alps and the Jura mountains with a gleaming blue lake and views of Mont Blanc from the right places. People move to the city, get hooked on the lifestyle and then do not want to leave.

Bloomberg recently published a story on the woes of the ultra-luxury residential market in the lake-side canton where wealthy foreigners have historically been able to cut a deal with the tax authorities and negotiate a flat rate tax so long as they do not generate any revenue in Switzerland. The lake-side luxury villas are peopled by Formula One drivers and other wealthy individuals of greater or lesser repute. However, the ground appears to be shifting and the market seems to have turned: there is greater uncertainty in respect of the tax treatment of these ultra-wealthy residents and the luxury villas that they own are falling in value. Zurich cancelled this arrangement a few years ago.

But what of the housing market for those looking to spend less than SFr10 million on their house? I have noted a fall in the number of new car registrations over the past two years since the Swiss franc brushed parity with the euro and before the Swiss National  Bank effectively pegged the franc to the euro at 1.20 – a level still some 20 per cent higher than a year before. But as the city wakes up after a long hot summer and children are back to school, other signs never seen before have been appearing. These signs are on houses advertising their availability for rent - Geneva has had a housing shortage for a number of years. And the new international schools and expanded older ones are advertising to attract the parents of international children whereas before there was a long waiting list at each school and places at the better ones were very difficult to find.

Costs and dollars

Swiss wealth managers have been hit by the combination of higher costs in local currency whilst much of their income is in US dollars. This has combined with a perfect storm of uncertain markets and the removal of the veneer of the unbreakable secrecy and discretion of the Swiss banking industry following on from the US and OECD attempts to prise the banks open and the much publicised thefts of data from certain institutions which was then offered for sale to EU governments. Banks have quietly been shedding staff and non-performing relationship managers. As all new business has to be tax compliant it is often also harder for RMs to take their clients with them if they wish to join a new employer.

UBS’s Swiss housing bubble index has risen every quarter since mid 2009 and now stands at 1.20, its highest level since the early 1990s when the market was crashing following the market boom of the 1980s.

A spokesperson for Grange & Cie, a Geneva real estate agent, confirmed to your correspondent that there are more residential homes available than before but stated that the rental rates remain as high as ever. Another agent put me on hold for 10 minutes before cutting me off .

A review of agents’ web-sites reveals a number of higher end apartments still asking for over SFr10,000 a month - but also confirms that the market is more liquid than before. It is certainly turning into more of a buyer’s market. More signs are going up on villas and there is a small three bedroom family home in my street available for SFr6,000 per month. But it has been empty for more than a year.

In the end, the real estate market anywhere is safe as houses – but Geneva real estate has increased in value throughout the financial crisis and international companies are retrenching in the face of increased costs – so the oldest adage in the book remains – let the buyer beware.