Increase utilisation and property value

Author: Bernhard Bircher-Suits, FundCom AG

Peter Müllerhans (name changed) is the owner of an apartment building in Aargau. His 40-year-old property has certain age-related defects, particularly in the area of the heating, windows and roof. Extensive energy-efficient renovation is urgently needed. The building was originally constructed with 8 rental apartments.

During a site inspection with an architect, Müllerhans draws attention to the large, unused attic. Müllerhans says: “The architect recommended that I check whether it was legally possible to add an additional storey.” The subsequent feasibility study carried out by the architect revealed that an additional storey in this residential area would be permissible.

Peter Müllerhans says that an additional storey and extension to include 4 additional apartments was an option, since the roof had to be replaced anyway due to its age. He also noted that “mortgage lenders are happy to support these kinds of projects because they increase the property’s value and the rental income.”

How to check the expansion potential of your property

Do you think there’s still untapped potential for expansion in your home or investment property? Then follow these steps to find out:

• Check the zoning plan and building regulations: Use the zoning plan to find out from your local authority which construction zone your home or investment property is in. The building regulations provide information about the possible uses of the plot and the maximum permissible utilisation, as well as the number of permitted floors, the maximum construction height and the legal distances from neighbouring plots.

• Clarify the land-to-building ratio: The land-to-building ratio defines the maximum permissible development of a plot. Specifically, the land-to-building ratio indicates the maximum allowable floor area on your plot. To calculate it, multiply the plot area by the land-to-building ratio. For example: 1000 m² plot area × 0.5 land-to-building ratio = 500 m² maximum allowable floor area that can be developed. This allows you to check whether or not your property’s expansion potential has been exhausted.

• Check your neighbours and the surrounding area: Neighbouring plots of land and existing additional storeys, as well as roof balconies or other additions, often give you an indication of existing expansion potential.

• Land register extract: Request an up-to-date extract from your notary’s office in order to identify any land easements, such as a right of way or right to build closer to the boundary.

• Arrange a meeting with the building authority: Most Swiss building authorities offer free initial consultations, where you can clarify general questions about land use and the applicable regulations – either in person or by e-mail. It’s important to note here that these consultations are for your guidance only and are not legally binding. However, the experts there can provide you with more detailed information about the structural possibilities and limitations of your plot. You can also check whether there are special regulations or other restrictions, such as listed building status or nature conservation requirements.

• Feasibility study: A feasibility study conducted by an architectural firm highlights the potential for extensions, annexes, additional storeys or new replacement buildings in accordance with the applicable building regulations. This includes, amongst other things, the land-to-building ratio, the building and zoning regulations as well as other construction rules. It shows which permits you need to obtain and whether there are any restrictions, such as listed building status, distancing regulations, etc. This will help you avoid legal problems and unnecessary delays down the line. In many cases, in order to obtain binding information about the actual development potential or utilisation of a property, you need an official planning application or planning permission, where the project is specifically assessed and approved or rejected.

Feasibility study provides more insight

A feasibility study not only shows which extensions are possible, but also the financial impact. Potential challenges such as structural requirements or objections from neighbours can also be identified at an early stage in this phase.

Based on the location factors collected, a neutral and independent opportunity-risk profile is drawn up for a potential project (including the corresponding feasibility study). There are also specialised planning offices that offer these kinds of services.

Take advantage of funding opportunities

Anyone who not only extends properties but also renovates them to make them more energy-efficient will also receive funding from the Swiss federal buildings program and cantonal funding programs. All programs of the federal government, cantons, cities, municipalities and regional energy suppliers can be accessed in the Energie Franken database with just a few clicks of the mouse, filtered by postcode.

Depending on where you live, you can also benefit from free advisory and support programs at municipal level. The cantons determine on a case-by-case basis which of your planned extension and conversion measures they will support and on what terms. The cantonal building energy certificate (GEAK) helps you plan your construction or extension project in advance and is sometimes a prerequisite for receiving subsidies. 

Carry out a cost-benefit analysis

Before you make any major investments, you should ask an expert (e.g. general contractor) to prepare a detailed cost-benefit analysis. This shows how the property value will change as a result of the conversion and extension, and when the investment will pay off. Also look out for any hidden costs, such as additional development costs or the need to modernise ageing infrastructure.

Consultation with creditors

If you’re planning financing for a renovation or extension, it’s worth talking to us at an early stage. Many mortgage lenders support value-enhancing projects, especially if they increase the loan value of the property. Banks often offer specific mortgage models for energy-efficient renovations or value-enhancing extensions.

Review the market requirements

An extension of your property should not only be technically and legally feasible, but also meet current market requirements. Think about which sizes and types of home are in particular demand in your region. Large apartments with five or more rooms, for example, are selling very slowly at the moment.

High-quality materials and modern fittings can significantly increase the rental price per square metre. Market analyses by property experts or estate agents can help you make the right decisions.

Value-enhancing extensions usually have tax implications

How does an extension affect your tax bill? The value-adding conversion of a non-insulated attic into a heated room, for example, leads to an increase in the estimated rental value and possibly the market value of the property, which affects your tax bill.

At the same time, value-preserving (maintenance) costs can be deducted from taxable income and value-enhancing investments can be claimed for tax purposes in the event of a subsequent sale. It is advisable to clarify the tax implications in individual cases in detail, particularly in light of the differences between cantons.

N.B.: Overall plan 

Whatever you have planned, a coherent overall plan and a well thought-out concept are essential for conversion and extension projects. Michael Hügli is Managing Director of the Swiss trades network Buildigo. It helps to find the best tradespeople in the region. Michael Hügli says: “A condition analysis with a renovation plan is a good basis for renovating properties.”

It’s worth bearing in mind that every component has a limited service life. The heating system, building envelope and building services must be replaced every 20 to 25 years. Precise planning of extensions and checking of existing, old components are therefore important. In the case of additional storeys, a structural analysis of the building also needs to be performed. The different trades must be properly combined and divided into stages.

It is also essential to work out an approximate budget. Architectural firms and construction specialists are guided by empirical values and standards. For larger projects such as additional storeys or extensions, the following applies: The costs per square or cubic metre of converted space are often similar to those of a new build.

Peter Müllerhans says: “The addition of another storey to an apartment building and the renovation cost a lot of money. In the medium to long term, however, the high investment should pay off, including for tenants in the form of greater living comfort.” Finally, client consultant Jves Lauper from LauperBautreuhand GmbH in Zurich advises people like Müllerhans: “Always look for reference projects from consultants, planners and companies. And always make clear contractual agreements.”

Checklist: Conversion and extension in 10 steps

• Condition analysis: Small project or more extensive measures? Check the condition of the building services and clarify development potential with a feasibility study – seek advice from developers if necessary.

• Clarification with building authorities: Is the extension project subject to planning permission? If necessary, initiate a planning application with an architecture firm.

• Planning and development: Clarify the design of the converted or extended rooms and floor plans.

• Set a budget: Define the cost framework.

• Material selection: Select equipment and materials from suppliers.

• Create a construction schedule: Have your site manager put together a detailed execution plan and construction schedule.

• Award contracts: Hire tradespeople – possibly involve client representatives.

• Inform neighbours or tenants at an early stage: Clarify organisational aspects, e.g. residential use during the renovation. Also inform affected neighbours in good time.

• Carry out the renovation: Depending on the procedure, this may take weeks to months, while simple renovations can be completed in 2 to 3 weeks.

• Sign-off: Sign off on the renovation work, draw up a report, settle any invoices and clarify any warranty issues.