How do I set the rent for my property?
How do I set the rent for my property?
"I would like to know what percentage of the value of the property is tolerated when setting the rent in relation to the purchase price. For example, can a flat purchased for CHF 200,000 be rented for more than CHF 12,000?"
Nil, Onex
In June 2012, according to the Federal Statistical Office, only 39,000 homes were vacant in the whole of Switzerland, representing a very low vacancy rate of 0.94%. In Geneva, the rate was around 0.5%.
However, landlords cannot take advantage of this shortage to freely set the price of the flat they wish to rent out, as the Code of Obligations protects tenants against so-called unreasonable rents.
A rent is considered unreasonable if it allows the lessor to obtain an excessive return on the rented property.
In order to determine the return on a property, the equity invested by the owner in acquiring the property must be compared with the income received from it. The Federal Court has ruled that these funds cannot provide a return of more than ½% above the interest rate corresponding to first-ranking legal mortgages. Each year, the Federal Housing Office sets a reference rate for the whole of Switzerland, which is currently 2.25 %. Therefore, a yield in excess of 2.75% is not permissible.
In order to calculate the relevant equity capital, it is generally necessary to deduct borrowings such as mortgages and other loans from the purchase price of the property. In addition, if the rent is to be calculated several years after the purchase of the property, the equity capital must be revalued in line with the increase in the cost of living. It should be noted, however, that the revaluation may only relate to an amount equivalent to a maximum of 40% of the purchase price of the property.
After determining the portion of the rent that is intended to return the landlord's own funds, it is important to take into account the charges that the landlord may pass on to the tenant, such as mortgage interest, management fees, taxes and building maintenance costs.
If, for example, the purchase of a property is financed with equity of CHF 200,000, the share of the rent linked to the allowable return may be a maximum of CHF 5,500 per annum. To determine the allowable rent, the costs that the landlord can pass on to the tenant as explained above must be added to this amount. Please note that if the tenant believes that the rent is excessive, he may, under certain conditions, contest it within 30 days of receiving the rent setting notice, failing which the agreed rent will be maintained.
