Building Rights vs. Full Ownership: What Does This Mean for Your Financing?

The Principle of Divided Ownership

Using land under building rights means you have the right to construct or keep a structure on someone else’s plot. For this, you pay the landowner – often public institutions, foundations, or churches – a fee known as the building right interest. Since the land value is omitted from the purchase price, the initial investment for a building rights property is significantly lower than with full ownership. You only buy the physical structure of the house, which may make entering home ownership in sought-after locations financially feasible.

The Calculative Hurdle of the Building Right Interest

Although the purchase price is lower, financing a building rights property often places higher demands on the buyer's income.

• Affordability calculation: Banks treat the building right interest in their calculations like an additional interest liability or ancillary cost. Because this amount is fixed and often indexed (linked to inflation), it reduces the leeway for the actual mortgage.
• Value development and reversion: Unlike the plot in full ownership, building rights are limited in time, usually to 30 to 100 years. Near the end of the term, the value of the building right theoretically approaches zero, unless there is a clear provision for extension or an appropriate compensation for reversion.

Financing Limits and Remaining Terms

When carrying out credit checks, Swiss banks place particular emphasis on the building right contract. The maximum loan-to-value ratio may be lower than the usual 80%, as the plot is not available to the bank as collateral. Another key criterion is the remaining term of the contract: Many institutions no longer grant long-term mortgages if the remaining duration of the building right is shorter than the desired amortization period of the mortgage.

From a tax perspective, the building right interest is a disadvantage for private owners in most cantons. While mortgage interest can be deducted from taxable income, this is usually not possible with the building right interest for owner-occupied properties. This increases the effective net costs compared to a higher mortgage under full ownership.

Strategic Decision-Making Aid for Buyers

Building rights are an attractive model for people who, with limited equity, want to live in prime locations and do not value having full control over the land. However, those seeking real estate as a long-term investment with maximum potential for appreciation are better off with full ownership, since here the increase in the land’s value fully benefits the owner. In any case, it is essential to thoroughly review the building right contract with regard to interest adjustment clauses and the regulations at the end of the term.

Advice & Support for Your Project

Have you set your sights on a building rights property and are unsure how the building right interest will affect your maximum loan amount? We analyze the contractual details for you and compare the offers from banks specializing in building right financing. Take advantage of our free 15-minute check for a professional initial assessment of your project and find out how we can support you on a fee basis.