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Swiss Prime Site CEO welcomes rethink on foreign investment restrictions

The Swiss government's recent decision to back away from proposals that would have restricted foreign investment in the country's commercial real estate market is "positive news" for the industry, the CEO of Switzerland’s largest listed property company, Swiss Prime Site AG, said during a first-half earnings call.

The country's Federal Council was considering imposing tighter restrictions on the Swiss Federal Act on Acquisition of Real Estate by Persons Abroad, commonly known as the Lex Koller, due to citizen concerns that foreign investors were pushing up property prices and rents. The proposed measures included additional restrictions on the acquisition of business premises as capital investments and the acquisition of shares in real estate companies listed on a Swiss stock exchange. The act currently prohibits the acquisition by foreign persons of Swiss residential and other non-commercial real estate.

The Federal Council decided on June 20 that the law should remain unchanged. The council reached its decision after an approximately 15-month consultation on the proposed measures, which were rejected by many of the respondents.

"In extreme cases, [a tightening of the Lex Koller law meant] it would have been impossible for foreign shareholders to invest in [Swiss] real estate companies. I think I'm speaking on behalf of the entire industry when I say that we're very happy that this is off the table," CEO René Zahnd said through a translator.

The Federal Council's decision may be subject to a referendum at a later date, Zahnd said. Referendums are common in Switzerland as the country practices direct democracy in parallel with representative democracy, allowing citizens to challenge laws approved by parliament or propose a modification of the federal constitution.

Zahnd partly attributed the Federal Council's decision to a reduction in Switzerland's net migration over the last year, which has seen immigration to the country fall from 80,000 to 40,000, he said. "Of course, things are much more complex than that, but the [immigration] issue is no longer as delicate as it used to be," he said. "The reduction of increase in population will certainly help us. Immigration will no longer be as hot a topic as a year ago."

The Lex Koller came into effect in 1983, although similar laws have existed in Switzerland since the 1960s, according to Thomson Reuters' Practical Law website. In recent years, the Swiss have vigorously debated whether to strengthen or abolish the law, according to the website.

Swiss Prime Site, a diversified real estate company with a portfolio of primarily office and retail assets, expects interest rates to remain low through 2018 and into 2019, which is "important for our segment," Zahnd said.

Assessing geopolitical risks is "very difficult" at the moment, he added. "You don't really know in any single day what to expect at the political level for the next day, and we have no control over this. We try to do our job as well as possible," he said.

However, Zahnd remains confident in his company's home market. "Fundamentally, the Swiss economy seems to be robust, which means there should be more consumption of space, which is a positive thing for us."

Swiss Prime Site logged a 7.8% year-over-year increase in realized profit at CHF152.0 million for the first half of 2018, compared to CHF141.0 million in the year-ago period.