Lukewarm beds: Companies are undermining the second home initiative with managed apartments

Construction is a busy time in the Swiss Alps: "A resort is planned in the heart of Davos that combines modern lifestyle with well-being and health," write the people responsible for "Elevation Davos." The project includes 120 vacation apartments, almost all with 3.5 rooms. Prices range between 1.1 and 1.7 million Swiss francs per apartment.

In San Bernardino, which is slated for revitalization, there are 86 "high-quality furnished" Alpine apartments: 2.5-room apartments starting at CHF 470,000, and 3.5-room apartments up to CHF 1.1 million. Compared to other destinations, these prices are moderate. In Andermatt, 19 "luxurious brand-name residences" will be built "in the heart of the old town" by 2027, costing between CHF 2.7 and 8 million.

This construction activity is surprising, given that the 2012 Second Home Initiative effectively prohibited the construction of additional vacation homes in mountain cantons. Article 75b of the Federal Constitution limits the proportion of second homes to a maximum of 20 percent of the housing stock.

This quota has long been reached in most holiday resorts. The apartments are only allowed to be built because they are classified as "tourist-managed apartments," which is permitted under the Second Homes Act of 2015. The prerequisite is that the apartments are "not tailored to the personal needs of the owners" and are managed "as part of a structured accommodation business."

This means that owners are not allowed to furnish their apartments themselves, but must accept the furnishings provided by the operators. They also agree to rent the apartment to third parties for several weeks per year.

"The concept is enjoying increasing popularity among tourism professionals," says Peder Plaz, partner at Hanser Consulting, one of Switzerland's largest tourism consultants. Vacation apartments remain very popular, especially among families. "People come with a lot of belongings. A vacation apartment is often more practical than a hotel room."

The demand is there. However, regular second homes, which are very expensive, are rented out less frequently. Plaz: "Those who can afford such an apartment usually don't rely on rental income." Owners often shy away from the hassle of renting out.

Managed apartments offer advantages for Swiss real estate and tourism entrepreneurs. High labor costs make it difficult to compete internationally with hotels. Vacation apartments, whose owners and tenants rarely use services, enable competitive prices.

The risks for entrepreneurs are also lower. "In the Alps, it's not those who offer tourism services who make the big money, but those who build and sell real estate," says Plaz. Operating a hotel entails high risks and usually low returns. Selling second homes, on the other hand, is associated with low risk of loss and attractive returns.

Banks are aware of this, too. They are reluctant to provide hotel loans. Therefore, it makes sense for tourism companies to seek capital from private investors.

One example is the Privà Alpine Lodge in Lenzerheide. After eleven years, its owner, the real estate company Fortimo AG, has decided to sell the residential units as condominiums with mandatory rental. The tenant, Revier Hospitality Group, writes: "Bank financing is becoming increasingly difficult, and tied-up equity is a challenge."

The Franz Weber Foundation, which played a key role in the second home initiative, is critically observing the boom in managed vacation homes. President Vera Weber confirms that the concept is fundamentally compatible with the Second Home Act and is intended to create "warm beds." In practice, however, it is often used to circumvent the law.

The problem: After completion, it is often not possible to verify whether owners are complying with the usage restrictions and whether the apartments are actually being rented to third parties.

"A closer examination reveals significant gaps and gray areas," says Weber. Commercial concepts are sometimes scarce or nonexistent. The "general" amenities—a prerequisite for "tourist-managed apartments"—are often minimalist and their use unrealistic.

The concepts are indeed very different. A look at the terms of use shows this.

Anyone who purchases an apartment at the Privà Alpine Lodge is permitted to use the apartment for only four weeks per year, including a maximum of two weeks during peak season. At the Davos Elevation resort, personal use is limited to "a total of six weeks during peak season," three weeks each in winter and summer.

At the Post Hotel & Residences in Andermatt, "12 weeks of personal use" is permitted. In San Bernardino, the apartment is available for up to 35 weeks per year—but only three weeks during peak season. The Rockresort in Laax has similarly generous regulations regarding personal occupancy.

Such regulations are controversial. "There are legal gray areas," says tourism professor Jürg Stettler of the Lucerne University of Applied Sciences and Arts. Ultimately, courts will decide what constitutes a "tourist-managed apartment" – and what constitutes a disguised second home. The Franz Weber Foundation is already taking action: "We have spoken out against a similar project in Wengen."

Another question is whether the real estate investment will pay off financially for the buyers. The developers are promising big things: In Andermatt, a return on investment of five percent is guaranteed for three years. In Lenzerheide, an "attractive return" is promised. In San Bernardino, investor Stefano Artioli is enticing buyers with rapidly rising real estate prices.

Tourism expert Plaz is skeptical: "If many projects come onto the market at the same time, it's not beneficial for occupancy." There's a risk of cold beds, which would reduce returns – and also run counter to the spirit and purpose of the second home initiative.

At least some buyers, however, are likely to be able to live with lower returns. The reason: Managed second homes can also be purchased by foreigners. For them, purchasing real estate in Switzerland is considered a safe investment, not least because of the strong franc. Lex Koller, which prohibits the purchase by foreigners, does not apply to apartments managed for tourism purposes.