What are alternative real estate assets?
Alternative real estate assets refer to property types that fall outside the conventional categories of residential, commercial, and industrial real estate. They tend to have different risk and return profiles compared to traditional real estate, making them attractive for portfolio diversification.
Types of alternative real estate assets
1. Student housing
Student housing are residential properties designed specifically for students. These properties are often located near universities and colleges, providing convenient access to educational institutions. The demand for student housing is driven by the steady influx of students, making it a relatively stable investment.
Example: A privately-owned apartment complex near a major university, offering furnished units, study areas, and recreational facilities.
2. Senior living facilities
Senior living facilities cater to the aging population by providing housing options that range from independent living to assisted living and nursing care. The growing number of retirees creates a strong demand for these facilities, making them a viable investment option.
Example: A retirement community offering various levels of care, from independent apartments to fully-assisted nursing homes.
3. Data centers
Data centers are specialized facilities designed to house computer systems and associated components, such as telecommunications and storage systems. With the exponential growth of data and the increasing reliance on cloud computing, data centers have become critical infrastructure.
Example: A large-scale data center equipped with advanced cooling systems, security measures, and uninterrupted power supplies, leased to tech companies.
4. Self-storage units
Self-storage units provide individuals and businesses with secure spaces to store their belongings. The demand for self-storage is particularly high in urban areas, where living area as well as office space comes at a premium.
Example: A self-storage facility offering a range of unit sizes, climate-controlled options, and 24/7 access for customers.
6. Hospitality properties
Hospitality properties include hotels, resorts, and short-term rental units. These assets can be highly lucrative, especially in popular tourist destinations or business hubs, though they may be subject to economic cycles.
Example: A boutique hotel in a major city, catering to business travelers and tourists, offering luxury accommodations and conference facilities.
8. Co-working spaces
Co-working spaces are shared office environments that offer flexible leasing options to freelancers, startups, small companies, and remote workers. The rise of the gig economy and remote work has fueled the demand for these spaces.
Example: A co-working facility in an urban area, featuring private offices, open workspaces, meeting rooms, and communal areas.
9. Agricultural land
Agricultural land in Switzerland can be an appealing investment, but it is governed by specific regulations. Under Swiss law (BGBB/LDFR), plots smaller than 2,500 square meters, or 1,500 square meters for vineyards, are restricted in terms of purchase. Only buyers approved by the canton are permitted to buy such plots, and approval typically requires that the buyer intends to use the land for their own agricultural purposes. However, exceptions might be granted for properties that have been leased long-term.
Benefits and challenges of alternative assets
Benefits:
- Diversification: Alternative real estate assets provide a means to diversify portfolios, reducing cluster risk.
- Growth potential: Certain asset classes, such as data centers and healthcare facilities, are poised for significant growth due to digitalization and demographic developments, respectively.
- Reduced market correlation: Specialized types of properties may not be subject to the same market dynamics as commercial or rental real estate, again diversifying risk.
Challenges:
- Market knowledge: Investing in alternative assets requires specialized knowledge and understanding of niche markets, which may pose a barrier to entry for some investors.
- Management complexity: These properties often require specialized management and expertise, adding a layer of complexity and expenses compared to conventional residential and commercial properties.
- Regulatory considerations: Certain asset classes, such as agricultural land, are subject to stringent regulations.
Buying property in Switzerland as an investor
Lex Koller
Lex Koller ('Koller's law', named after Federal councilor Koller) is a Swiss law that restricts the purchase of real estate by foreign non-residents. The law aims to prevent excessive foreign ownership of Swiss land. Under Lex Koller, properties are classified into two main categories: residential and commercial. The regulations for each category differ significantly.
Commercial properties
Lex Koller does not apply to commercial properties, meaning non-residents may freely purchase office buildings, retail spaces, hotels, industrial properties, and other commercial real estate without needing a special permit. Properties with both residential and commercial components are treated according to the predominant use.
Residential properties
EU/EFTA nationals living in Switzerland as well as holders of a permanent residence permit (C permit) can purchase residential properties without special permits, just like Swiss nationals. UK citizens living in Switzerland are covered by the Agreement on Acquired Citizens’ Rights and have the same rights as EU/EFTA nationals.
Non-EU/EFTA nationals living in Switzerland need authorization to purchase certain types of real estate. These include holiday homes, which can be rented out temporarily; residential units in a serviced apartment building; and second homes, which cannot be rented out. However, authorization is not required to buy a main residence and building land, provided the buyer holds a permanent residence permit (at least a B permit).
Non-resident foreigners cannot purchase secondary residences, except in designated tourist areas. In tourist regions, the number of secondary residences available to foreigners is subject to a quota.
Except for cross-border commuters, non-Swiss nationals living abroad always require authorisation to buy property.
Conclusion
Alternative real estate assets present a compelling opportunity for investors looking to diversify their portfolios and tap into emerging sectors. While these investments come with their own set of challenges, the potential benefits, including stable income and growth prospects, make them an attractive option. By carefully evaluating the unique characteristics and market dynamics of each asset class, investors can make informed decisions and enhance their real estate investment strategies.
