Recently, in Switzerland, increasingly more often people buy and sell properties with the viager clause. This sort of investment allows the buyer to build a property portfolio at low CAPEX, and at a lower purchase price than in the case of traditional purchase. In return, the seller receives an additional life-long pension. What do you need to know while considering an investment in a property with a life-long pension?
The term “viager” (life-long) derives from the Old French word “viage”, which means “the length of life”. In this sort of contract, the buyer (debtor) buys a property from the seller (creditor), but cannot use it, live in it, or sell it as long as the seller is alive. While signing the notarial deed, the buyer pays a specific amount to the seller, as agreed between the parties, usually corresponding to 20-30% of the estimate value of the property. Next, every month, until the seller’s death, the buyer pays a life-long pension calculated on the basis of the real property price less selling price. The property can also be bought under a single payment of the capital and without a life-long pension, in which case the benefit is the option of purchase at a price lower by 30% to 50% of the market value of the property. Nevertheless, unobstructed disposal of the property is only possible after the death of the seller.
This is a clear majority of property sales with the viager clause. The seller sells its apartments at a price lower than the market price (discount depends on the age of the seller, property value with discount rate, and it may achieve from 30% to 40% market value of the property), whereas the seller keeps the right to use and live in the property until one’s death. The buyer is the property owner, but cannot use it freely.
In this case, which is much less frequent, the buyer can dispose of the property. Just as in the case of viager with the use of property by the seller, upon the contract conclusion, the buyer must pay a certain amount to the seller, and pay the life-long pension, usually higher than in the case of higher than in the case of viager with the use of the property by the seller. The selling price is based on the market value of the property and depends on the age of the seller. The older the seller, the higher the price.
Buyers usually include private individuals. They do not always intend to live in the property purchased. Such buyers consider properties as their safe harbour. Buyers may also include pension funds that buy properties and then sell them with profit.
– This is a mid- or long-term investment that allows building a property portfolio at a lower cost because selling price is reduced by a discount due to the fact that the property is inhabited.
– In most cases, buyers do not need to use bank loans. The amount paid in cash upon contract conclusion usually totals 20% to 30% estimated market value of the property.
– Taxation is favourable. Nevertheless, the buyer needs to pay a tax on ownership transfer calculated upon total price. The life-long pensions will be deducted from the declared revenue at the rate of 40%.
– Banks are unwilling to give loans to finance the amount paid upon contract conclusion. In fact, if the buyer failed to repay the loan, the bank cannot take over the property because the seller’s right to occupation has the priority here. For this reason, the buyer needs to have one’s own funds.
– The life-long pension may be, for example, established for a couple. In such a case, the buyer will have to pay the pension until the death of both persons.
– Property purchase with the viager clause is a sort of bet referring to the owner’s lifespan. This was the reason why this sort of contracts was not popular for a long time. Indeed, it may happen that seller lives to a very old age, in which case total amount of pension paid for many years may exceed total value of the property. The most famous case, described in the media, involved a French woman, Jeanne Calment, who died at the age of 122 – as many as 32 years after selling her house! But this is certainly an extreme and exceptional case.
In this article, we explain some issues related to buying a property with the viager clause. The process of buying a property with the viager clause is complex and time-consuming. In order to peacefully and effectively manage such a project, a specialist’s assistance is necessary. We are convinced that such type of property transactions will be increasingly frequent in Switzerland in the coming years, so Lookmove is building partnership relations with recognised real estate experts specialising in viager in Switzerland. They are available if you wish to obtain some advice or information.
CONTACT AN EXPERT IN REAL ESTATE TRANSACTIONS WITH THE VIAGER CLAUSE