Switzerland: The safest of havens

Source: Photo from mcfisher on Pixabay

The covid crisis, and especially the destructive governmental responses to it, have wreaked havoc with the global economy and with our societies. However, the chaos and the widespread uncertainty that prevailed over the last year and a half also served as a useful reminder of the importance of stability, legal predictability and limited state powers.

A great number of High Net Worth Individuals (HNWIs) seem to have recognized the value of a jurisdiction that has a solid track record of demonstrating respect for private property rights and individual liberties. This why Switzerland has once again emerged as an immensely popular destination for the ultra-rich and their assets.

Back on top

After the intense pressure applied by the US to dismantle banking secrecy laws, especially under President Obama, a lot of Swiss banks saw their clientele diminish. In the years that followed, demand for Swiss banking services continued to be anemic as many wealthy Westerners were concerned about further escalations in the war against privacy and financial sovereignty waged by many of their own governments too. At the same time, Switzerland saw an inflow of assets from many ultra-rich clients from developing nations and from Asia, that helped its banks weather the storm.

Today, however, the tables have turned once again. The extreme state power abuses and the unprecedented excesses we witnessed since the start of the pandemic have convinced many wealthy Europeans to reevaluate their investment strategies and their jurisdictional diversification plans. Whatever their fears might have been in the past, whatever “worst case scenario” they might have imagined even two years ago, it has all been overshadowed by the realities of the covid era. This “new normal” that we are now all living through presents a far greater threat to their life savings and to their family wealth than any regulatory tweak or legal shift one might have envisioned before the pandemic emerged.

Therefore, many prudent investors and HNWIs have decided to “vote with their feet” and with their money. They are abandoning their own jurisdictions en masse, justifiably worried about the imminent risks they face there. They are relocating to Switzerland and bringing their considerable assets with them. According to the German news agency DPA, Germans, Italians, French and Britons are among the key drivers of this trend, as they are overrepresented in the new money inflows that are boosting the outlook of Swiss banks.

Luxury Real Estate boom

The rapidly rising appeal of Switzerland is also evident in its luxury real estate boom, triggered by the covid crisis. According to a recent report by UBS, the number of luxury home sales rose in the past year by more than half compared to the previous year and it is now around three times higher than its 5-year average.

As UBS real estate expert Katharina Hofer highlighted, “the excess demand caused prices in the luxury segment to skyrocket by 9% in 2020 — significantly more than the 4.4 percent in the average Swiss home market”. The bank also noted that it was foreign buyers that largely fueled this surge. One of the regions that benefited the most was Lake Geneva, with luxury property prices climbing 16%, while the Alpine regions also saw significant increases, around 10%.

Of course, this large wave of new investments is certainly positive for Switzerland on an economic level, but it also sends a strong message internationally about the priorities and the values that high-end buyers and investors look for. The choice of so many HNWIs to invest in real estate in the country and to physically relocate there speaks volumes about what is wrong in their own nations and what is right in Switzerland.

That being said, it is also important to point out that the decision to opt for properties in the country’s biggest cities shows that, even among the very wealthy, there is arguably a misguided optimism about the future of metropolitan hubs. After all that we saw during the covid crisis, and all the lessons that we learned — or should have learned at the very least — it is clear that “big city life” will have numerous challenges going forward. For those of us who value our individual sovereignty, our privacy and our ability to move, work and interact with each other freely, in a structure as decentralized as possible, municipalities populated with like-minded individuals and built on a self-sustainable, off the grid, and independent basis, are far more attractive than large urban centers.

Naturally, this contrast is much less pronounced in Switzerland, as cities like Geneva or Zurich bear no comparison to the likes of New York or London. Nevertheless, even in our small alpine nation, there is a strong case to be made in favor of more contained, harder to access and decentralized communities.

Why Switzerland?

There are many good reasons that could easily explain the flock of so many wealthy families and investors to Switzerland and all of them have been reinforced by the pandemic. For one thing, the local measures that were adopted to contain the virus were far less restrictive than those that were enforced in Germany, France, Italy or the UK. Business activity, freedom of movement, freedom of speech, all individual and civil rights were significantly less infringed upon compared to what we saw in other “Western democracies”.

Furthermore, there are the long-standing advantages that Switzerland has to offer, like its tax regime. While this is not a new argument in favor of relocating, the aftermath of the covid crisis has highlighted its importance. After the massive stimulus packages and the unlimited spending that governments all over the world engaged in during the pandemic, and continue to do so, there are legitimate concerns over imminent tax hikes and other financial repression measures. We are already seeing solid evidence that many advanced economies are headed in this direction. In the US, President Biden’s tax plans are clearly designed to penalize wealthy individuals and successful businesses, while over in Europe, the pressure is also building to follow suit.

Last, but certainly not least, Switzerland offers legal and regulatory stability, the assurance that the rules will not change overnight and at the whim of whomever happens to be in power at the time. The country’s system of direct democracy, the principle of subsidiarity and its reliance on frequent referendums, ensure that the state’s powers remain in check and that the Swiss people have the last word. Of course, our liberties are also threatened here too and there is always constant pressure from statists and central planners. However, a large part of the Swiss population has and will continue to resist it. Especially in terms of private property rights and respect for individual liberties, Switzerland might be far from perfect, but it is as good as it can get.

It is this particular feature of the Swiss democratic system, the direct and accurate representation of the public will, that provides the bedrock of nation’s sustained track record of prosperity, peace and economic strength throughout the decades. It renders political power grabs, oppressive legislative moves and regulatory overreach much less probable, while the citizens’ ability to be heard, to freely debate important issues and to represent themselves also contributes to the nation’s social harmony and cohesion. All this is instrumental in the long-term stability that investors are seeking and the combination of all these elements cannot be found anywhere else.

The bigger picture

While this trend clearly underlines the specific advantages that Switzerland has to offer over its neighbors and most other advanced economies, it also illustrates a much more important point and provides evidence of a wider shift that investors, savers and ordinary citizens should bear in mind going forward.

One of the most consequential changes that the pandemic brought about was the sudden and explosive expansion of the government’s reach and its ability to interfere with the average citizen’s private life and property. As history teaches us, “emergency” state powers and “temporary” curbs on civil liberties have a tendency to linger long after the actual crisis is over.

Politicians know that they should “never let a good crisis go to waste” and this became apparent very early on in the covid crisis. They successfully employed the oldest trick in the book, promising security in exchange for freedom, and with the full support of the mainstream media fear mongering campaigns, countless citizens accepted that deal. As a result, excesses and abuses that would have been deemed unthinkable before the virus emerged are now part and parcel of daily life.

The body politic has largely come to accept them as “necessary”, while a considerable segment even presses for more and tougher restrictions, under the misguided belief that the state can protect them from any and all risks out there. Such a dramatic shift would normally have taken decades, or would have required an event as cataclysmic as a war to act as trigger. The fact that it materialized so swiftly during peacetime and that it represents a trend that is very unlikely to be reversed anytime soon presents numerous grave and imminent threats to all those who are opposed to it.

Many responsible investors and savers have long understood the implications of such a shift and have been preparing for it for some time. In particular, precious metals owners have found themselves in an enviable position, one that is set to hand them a decisive advantage in the aftermath of this crisis. In this climate of widespread uncertainly, the investment case for physical gold and silver is clear cut, as no other asset class can offer this level of protection and reliably preserve purchasing power just as it has done for the past 5000 years.

However, beyond the obvious economic challenges, there are also political and regulatory risks that must be seriously considered and factored into any viable and effective financial plan. Scenarios that were once perceived as far-fetched or extremely improbable are now an essential part of many wealthy investors’ strategies, as the rush of relocations and the asset inflows into Switzerland plainly demonstrates.

This is a realization that is necessary and vitally important not just for the ultra-rich and the “1%”. Proactive planning, thinking ahead and developing a reliable and sensible defensive strategy that covers both financial and political risks is essential for any prudent saver. Complacency, blind faith in one’s government and merely “hoping for the best” are surefire ways to end up on the losing side after the dust has settled.

Claudio Grass, Hünenberg See, Switzerland

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