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Edge Prop: Swiss Alpine apartments: Sound investment or the next trophy asset?

The article was originally published on EdgeProp Singapore. Read it here

The Covid-19 coronavirus has now infected over 81,000 people across 43 countries. Switzerland has not been spared: On Feb 24, the country stepped up measures to contain the outbreak as Italy — which lies just across the border — has reported at least 374 confirmed cases and 12 deaths as at Feb 26. In Switzerland, there’s one confirmed case so far.

Andermatt Swiss Alps has not seen a drop in visitors and guests given that the majority of our clientele at this time of the year are from Europe (Photo: Andermatt Swiss Alps)

Fears of a health crisis however, has not marred the beauty of Andermatt — a picture postcard Swiss village in the Ursern Valley —surrounded by snow-capped mountains and located 1,400m above sea level. The virus has not kept visitors away from Amdermatt Swiss Alps, which according to its developer and operator (Andermatt Swiss Alps AG), is the biggest integrated holiday resort development of its kind in the country.

“Andermatt Swiss Alps has not seen a drop in visitors and guests given that the majority of our clientele at this time of the year are from Europe,” notes Stefan Kern, head of PR and communication for Andermatt Swiss Alps (ASA). “The peak season for Chinese travel traditionally starts in April, so the effect has been muted.”

The integrated holiday resort at Andermatt Reuss has been developed in phases over the past 15 years by ASA, which is wholly-owned by Egyptian billionaire Samih Sawiris through his companies SOSTNT Luxembourg (51%) and Orascom Development Holding (49%).

Andermatt — a picture postcard Swiss village in the Ursern Valley —surrounded by snow-capped mountains and located 1,400m above sea level (Photo: Andermatt Swiss Alps)

Orascom Development has experience in developing resort properties. It has developed golf courses, marinas and supporting infrastructure in tourist destinations such as Egypt, the United Arab Emirates (UAE), Oman, Morocco, Montenegro and the UK.

Sawiris has invested CHF1.1 billion ($1.5 billion) so far, and is expected to invest a total of CHF1.8 to CHF2 billion into Andermatt. When fully completed, it will have six four- and five-star hotels, 42 apartment buildings with some 500 to 600 apartments and 28 ski chalets.

The most famous hotel there is the five-star, The Chedi, which opened in 2013. Besides the 123 guest rooms and suites, The Chedi also includes residences and apartments which are offered for sale. The latest hotel to open is the four-star, 244-room Radisson Blu Hotel Reussen, which opened its doors in 2019.

The five-star, The Chedi, which opened in 2013 is one of two completed hotels at Andermatt today (Photo: Andermatt Swiss Alps)

So far, nine apartment buildings with a total of 165 apartments have been completed. Another apartment building with 44 apartments is due to be completed this summer.

Foreign demand

The Swiss vacation home market has benefited from favourable economic conditions in recent years, says UBS in its 2019 report on Alpine properties. “Economic growth accelerated, financing terms remained attractive and the Swiss franc weakened slightly against the euro,” the report adds.

Last year, prices increased mainly in the most expensive Swiss destinations, adds UBS. The vacancy rate in expensive destinations is 2.6%, or one percentage point lower than in the other regions, according to the report. “Foreign demand for vacation apartments is focused on these expensive destinations.”

The Swiss vacation home market has benefited from favourable economic conditions in recent years (Photo: Andermatt Swiss Alps)

At Andermatt — which was ranked 19th among the top vacation apartment markets in the Alpine region in 2019 — prices averaged CHF9,500 psm last year, reflecting a 2.6% increase y-o-y; and 4.7% increase over a 10 year period, according to UBS in its report.

Residences for sale

ASA is also offering two new apartment houses for sale off-plan in collaboration with Schmid Immobilien AG. These apartments will be completed in 2021.

JLL was appointed the marketing agent for these two new apartment developments in Asia Pacific, including Singapore in late 2019. A launch was scheduled sometime early this year. “In light of the current situation, we’ve postponed the sales event,” says Widya Lestaluhu, JLL Singapore’s head of international residential sales. “However, we’re actively marketing the property online and arranging for private viewing experiences for our clients in the meantime.”

One of the developments, Apartment House Arve, is located in the village centre of Andermatt Reuss. It contains 17 one- to three-bedroom apartments sized from 73 sqm to 116 sqm. Prices of the apartments range from CHF795,000 (CHF10,890 psm) to CHF1.85 million (CHF15,948 psm).

The other development, Apartment House Enzian, also located at Andermatt Reuss, has 12 apartments. These are a mix of one- to three-bedroom units with sizes from 62 to 136 sqm. Meanwhile, prices range from CHF775,000 (CHF12,500 psm) to CHF1.765 million (CHF15,619 psm).

Unique position

The developer is offering two options for buyers: A rental guarantee scheme with an offer of a 3% nett return, where the owner gets to enjoy the use of the apartment four weeks a year.

The developer is offering a rental guarantee scheme to buyers as an option (Photo: Andermatt Swiss Alps)

The second option is for the buyer to put the apartment in the rental pool and Andermatt Swiss Alps will manage the property on the owner’s behalf. The rental income will be shared with the owner, who will get 75% of the amount.

Buyers of these two off-plan projects need to pay a 20% deposit and the balance will be payable upon completion. Mortgages are available to international buyers, with loan-to-value typically in the range of 50% to 80%, depending on the customer, says Russell Collins, ASA’s head of sales.

In Switzerland, the Lex Koller legislation restricts foreign buyers from owning residential real estate and non-commercial real estate for investment purposes. Foreigners are also restricted from buying land for development. Meanwhile, the Lex Weber law — introduced in 2015 — restricts the construction of second homes to 20% of total homes in a municipality.

Andermatt offers brand new facilities and one of the best snow seasons in Switzerland (Photo: Andermatt Swiss Alps)

However, at Andermatt foreigners are not restricted in their purchases of apartments and other residences. “As a developer, we are in a unique position,” says Collins. “Andermatt is the only large-scale project that has an exemption from Lex Koller restrictions.” It is also exempt from the Lex Weber law.

Beyond skiing

The main attraction is the Ski Arena Andermatt Sedrun, an area that ASA has modernised since taking over its development and operations in 2013. The railway station has been upgraded along with 180km of ski runs linking Andermatt, Sedrun and Disentis

“Expansion of the ski area — which has doubled in size — has been the most significant investment for the Andermatt,” says ASA’s Kern. “That has been one of the major catalysts for the growth in demand from property owners and tourists in the region.”

The most significant investment has been in expanding the ski area, which has doubled in size; and it's a major catalyst for growth in demand from property owners and tourists in the region (Photo: Andermatt Swiss Alps)

Other resort facilities include a public indoor pool and an 18-hole championship golf course. A 700-seat concert hall opened in June last year, which has played host to the Berlin Philharmonic Orchestra. “We are committed to delivering tourism for the Andermatt area throughout the year,” adds Kern. “This is good news for investors who buy property here as well.”

Capital growth

To date, about one-third of the master planned development has been completed. As the resort matures, and more infrastructure is developed, prospective buyers could also look forward to future capital growth for their assets, adds Collins of ASA. “Land for building apartments is restricted; and that’s also a factor contributing to price upside in the future.”

To ensure sustainability of the developments, the apartment buildings and hotels are built to the Minergie standard, a recognised Swiss quality label for sustainable and ecologically designed buildings. All the heating, water and electricity is generated by renewable sources, ensuring that all the properties at Andermatt Swiss Alps are 100% carbon neutral, says Kern.

Facilties at Andermatt include an 18-hole championship golf course and a 700-seat concert hall opened in June last year (Photo: Andermatt Swiss Alps)

In view of the coronavirus outbreak, “We are taking all reasonable precautions including ensuring high levels of hygiene at all times according to Swiss standards,” Kern adds.

In addition to Apartment Houses Enzian and Arve, a third new block will be released for sale off-plan sometime in March, says JLL’s Lestaluhu. The apartments in this new block are predominantly studios and one-bedroom apartments with prices starting from CHF350,000, which should appeal to investors, she adds.

Switzerland is viewed as a safe haven with good governance, which has always been attractive for foreign investors, she notes.

“We believe that Andermatt has the potential to be considered as the next trophy asset to own in Europe,” says Lestaluhu. “It offers brand new facilities and one of the best snow seasons in Switzerland.”

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