Hidden costs when building a house: what people often forget

Purchasing a plot of land is often the first step in the adventure that is building a house. Here’s where the first substantial additional building costs associated with buying a house are lurking: land transfer tax, notary fees and land register entry fees. In Switzerland, these costs vary widely by canton. There may also be costs for connecting the property to electricity, water and sewerage. To make sure your new home is built on solid ground, a soil survey may be needed. This preliminary check of the building site can help pinpoint hidden risks such as contamination or water problems, which in turn can prevent unexpected building costs.

Construction planning is more than just drawing up plans. This phase incurs additional building costs for architectural and engineering works, as well as consultants, which help with the feasibility and planning of the project. Even the costs of obtaining the necessary approvals – and potentially environmental, structural engineering or soundproofing surveys – can eat away at your budget. These expenses are critical to a building project starting off on a solid foundation. Experts such as architects and civil engineers can help you optimize overall costs with careful planning and realistic calculations. For instance, they might develop cost-effective plans, check alternative building materials, or suggest budget-friendly building solutions that also meet legal requirements. If these additional costs are integrated early on into financial planning, you’ll avoid getting a nasty surprise in later building phases.

The building phase itself comes with numerous added costs. This includes costs for temporary construction site equipment, safety/security measures and, last but not least, possible delays that may result in additional financing costs. Add to this insurance policies such as construction insurance and builder’s liability insurance, which are required in Switzerland, to protect against damages and liability risks. The total sum of these additional costs when building a house can vary widely, depending on the complexity of the building project and local circumstances.

Even after the builders have left the site, there may still be additional costs. This includes expenses for the final design of the outside area, as well as connection fees that may be first due upon moving into the property. There may also be costs incurred for acceptance tests carried out by authorities and building monitoring carried out by engineering offices, which ensure everything complies with regulations and that the house is ready for moving in.

Once the diggers have left and the paint rollers have been put away, this is when life can truly begin in the new home, and with it, a whole host of new expenses. As a homeowner, you will be confronted with running additional costs, which tend to far exceed what renters would typically have to pay. Here is a direct comparison to help you make a realistic assessment of your monthly charges:

Mortgage costs

The biggest monthly expense for many homeowners is financing their own home. This includes interest and amortization of the mortgage. Depending on the mortgage amount and current interest rates, these costs can make up a substantial portion of your household budget. This is why long-term financial planning is essential.

Insurance

Whereas renters usually only require liability and household contents insurance, homeowners also need to take out building insurance. This protects them from things like fire and water damage and is mandatory in many Swiss cantons.

Regulations vary a great deal from canton to canton: in some cantons, building insurance is governed by a cantonal insurance company with a monopoly, which means that you are only able to take out the policy with that canton’s building insurance office (e.g. in Bern, Zurich or Vaud). In other cantons, such as Geneva or Appenzell Innerrhoden, there is no insurance monopoly, meaning homeowners may opt for a private insurance company. Moreover, the risks insured also differ: some cantons only cover fire damage and natural hazards, whereas other cantons offer additional benefits.

Furthermore, it is advisable to consider other policies, depending on your personal circumstances, such as life insurance. These policies can help hedge against financial risks to your family in an emergency.

Energy costs

Electricity and heating costs tend to be higher for property owners, because they often heat larger spaces and operate more electrical appliances. The type of heating used − whether gas, oil, wooden pellets or a heat pump − and whether you opt for or against solar panels can have a major impact on energy costs. Ensuring the building envelope is well insulated, e.g. with high-quality windows, doors and insulation materials, can also greatly reduce heating costs. Modern, efficient heating systems or the use of solar energy can help reduce running costs in the long term, but they do require an initial investment that should be factored into your financial planning.

Water costs

These costs are generally comparable, but owners who have gardens to water or a swimming pool or whirlpool will be confronted with much bigger water bills.

Waste disposal

Depending on the municipality, the costs of waste collection will differ, but owners often have more waste if they handle garden waste or major renovation projects.

Gardening

This is an item renters rarely have to deal with. From looking after the lawn to pruning the hedges, the costs of gardening can be substantial, especially if professional services are used.

Maintenance and repairs

Renters can simply pick up the phone and call the landlord when they have issues. Homeowners, by contrast, have to deal with everything themselves, from leaky taps to a damaged roof. These repairs can be unexpected and costly, but it’s important to keep a close eye on things to avoid more serious damage, and in turn, higher costs.

Property tax and other tax effects

Homeowners should factor property tax into their budget as an annual expense. This is usually paid out to the municipality directly and is based on the value of the property. However, not all municipalities in Switzerland charge property tax. Indeed, regulations vary locally and from canton to canton, which is why it’s important to find out beforehand.

Additionally, the official value and rental value of the property are important, as these can increase the taxable income. The official value is the basis for wealth tax, whereas the rental value is calculated as “fictitious” income for income tax purposes. These tax effects can have a major impact on available budget and should be taken into account during financial planning.

Renovations

While renters benefit from the fact it’s the landlords who will take care of larger renovation works, homeowners are able to design and improve their home based on their preferences. This freedom means material and labour costs, which can quickly pile up.

Well-planned renovation work can pay dividends, however: in Switzerland, it is possible to claim many renovation costs as tax exempt, which can result in clear tax savings. Work that really helps retain a property’s value, such as replacing the heating system or restoring windows, is often tax-deductible. This is why it’s worth looking at the issue of tax during planning and building up reserves in advance.

Additionally, renovation work should not be dragged out for too long, as repairs and maintenance work often cost less than large-scale renovation work required as a result of years of overdue maintenance.

Administrative costs

Homeowners who rent out their property should also consider administrative work − including looking for tenants, contract work and maintenance. This extra work costs time and money but is important to being a successful landlord.

Sewerage fees, street cleaning, snow clearing

In many municipalities, there will be fees for sewerage, street cleaning and snow clearing that homeowners themselves must pay. These costs vary from place to place and are potentially substantial in urban areas in particular.

In rural areas, street cooperatives can also play a role. These arrange maintenance and winter services for private access roads and municipal roads and distribute the costs amongst the owners involved. It’s important to read up on potential obligations in the region and to budget realistically for these expenses.