Today’s vote enacting the abolition of the tax on imputed rental value marks a turning point for property owners, future buyers, and the real estate market as a whole. It comes in a particular context: a population growth of 2% per year, historically low interest rates, a housing shortage (0.3% vacancy in Geneva), blocked development in villa zones, and almost no large real estate projects. The IN 180 adopted in Geneva worsens the shortage situation by removing opportunities to build condominiums (PPE) or villas. The scarcity of available housing will mechanically lead to an increase in prices for these highly sought-after segments.
Why the Imputed Rental Value Reform Benefits Buyers:
  • First-time buying couples retain the mortgage interest deduction for 10 years up to CHF 10,000 of interest per year. Combined with the abolition of imputed rental value, this measure makes buying even more advantageous.
  • These deductions occur only once. They are not eliminated but deferred until the owner sells the property, at which time they can deduct all renovation work from taxable income, provided they have not already deducted them from taxable income previously.
  • These deferred deductions can thus be considered as tax-free savings. These amounts are removed from the taxpayer’s taxable assets but will be recovered upon resale.
  • With interest rates at rock bottom, losing the ability to deduct them will be less significant.
  • Imputed rental value is a fictitious income that penalizes owners each year, unlike deductions which occur only once.
Differentiated Impacts by Profile:
  • Lump-sum tax regime: no change, as imputed rental value was not added to taxable income and no deductions were possible.
  • Owner-occupiers: less pressure on elderly people to sell overly large homes, which could reduce supply available for families. This will mainly limit opportunities for developers and thus the number of new homes.
  • Landlords: some may prefer personal occupation over renting, increasing strain on the rental market.
Renovations and Construction:
  • Energy renovations of buildings remain mandatory with or without deductions. This should not impact the pace of renovations in the building stock.
  • Federal deductions for energy renovations disappear, but cantonal deductions remain possible depending on the canton. In Geneva, these deductions are guaranteed at least until December 31, 2030. This work therefore continues to offer immediate tax benefits.
  • In the coming months, a “rush” for energy renovations is expected, which may increase craftsmen costs, indirectly raising construction costs.
  • Those hesitating between demolishing or renovating their house may opt to demolish, which will increase the carbon footprint.
  • Over time, this reform could widen the price gap between new properties and old properties to be renovated, further reinforcing the appeal of recent constructions.
Conclusion
These two votes occur in a context where everything pushes prices upwards: near-zero vacancy, blocked villa zones which used to produce 65% of new housing, lack of new large projects, historically low interest rates, abusive oppositions without penalties. Authorities continue to add layers of laws and directives that discourage developers. IN 180 and the abolition of imputed rental value will only amplify this upward dynamic.
In short, buying today will cost much more in the future.
Leonard Cohen
Founder Leonard Properties