Sensible property renovations

The ravages of time take their toll on everything – residential buildings also lose value over time. The general rule for various building components, fixtures, and technical equipment is that their value decreases by one or two percent each year. And yet an older home can still fetch a higher price when resold if it has been well maintained and renovated to a modern standard. What counts as a sensible value-enhancing investment in a property, and what you need to watch out for.

The service life of individual components can vary greatly from case to case. The following service life table therefore only contains guide values:

“Although essential maintenance and routine upkeep preserve value, they do not represent a genuine investment,” explains Matthias Holzhey, economist at UBS and Head CIO Swiss Real Estate. Rather, owner-occupied residential property and the associated running costs should clearly be counted as consumption expenses. Homeowners should not be under the illusion that renovations based on personal taste – for example the installation of high-quality kitchen cabinets and appliances – are an investment. Even a sunroom or sauna do not usually increase the market value of a property by the same amount as they cost. Every owner has personal preferences. While some people see their very own swimming pool in the garden as a source of real added value, others have no use for it at all.

Similar findings are obtained on the basis of hedonic valuation models and methods commonly used in the market and the industry. Take, for example, the owner of an older single-family house: they can choose to invest CHF 100,000 in a comprehensive renovation or CHF 60,000 in converting the attic. The return on investment will be different: a comprehensive renovation will generally only partially increase the market value, as a substantial proportion of this is considered normal upkeep and maintenance. If, on the other hand, the owner obtains more living space by adding a story or by converting the attic or basement, these investments are actually likely to pay off – in most cases, more usable living space means prospective buyers are more willing to pay.

As Matthias Holzhey explains, energy-saving renovations and heating system conversions are among the expenses that usually pay off financially. For example, if you install a modern heat pump that uses renewable energy, you will improve the property in several ways at once: firstly, you will be sure that your building and the services installed in it comply with the latest legislation. Secondly, this conversion will reduce the property’s energy and operating costs in the long term. Matthias Holzhey raises another point: “The tax deductibility of investments of this kind, and the subsidies from cantonal funding programs, further enhance the attractiveness of such projects.” For example, anyone who invests CHF 50,000 or 60,000 in this type of energy-saving improvement will be able to refinance at least 20 to 30 percent of it through tax benefits and government investment contributions.

In the end, price developments also depend largely on the location and on local land prices. Building land will increase in value in a positive economic environment. Land price trends evolve differently depending on the location and region. In recent years, large urban centers and suburbs in particular have seen growth. Value also depends heavily on the specific location: important factors include proximity to a medium or large town center, employment prospects, good transport connections and tax levels, as well as the financial standing and infrastructures of the municipality where the property is located.