Geneva housing scarcity may thwart UK exodus

Geneva, touted as a haven for London bankers facing heavier UK taxes, may lure fewer than predicted thanks to a housing shortage, crowded schools and a 44 per cent income-tax rate.

Barclays president Robert Diamond this month joined a chorus of financial leaders in arguing that the UK's 50 per cent tax on bonuses would drive bankers away from London. The Swiss Private Bankers Association said the "arbitrary" tax will boost the allure of Geneva, whose bankers oversee about 10 per cent of the world's foreign-held private wealth.

"It's a joke, it's lobbying," said Tim Dawson, an analyst at Geneva-based brokerage Helvea. "People are dreaming if they think the London investment banking world is going to move.

"There is more office space in Canary Wharf than in the whole of Switzerland," he said, referring to London's second financial district.

Britain's Chancellor of the Exchequer Alistair Darling said this month that banks awarding discretionary bonuses of more than £25,000 ($56,000) would have to pay a one-time levy of 50 per cent. That followed earlier decisions to boost the top tax rate to 50 per cent and rescind special breaks for residents whose tax home is outside the country.

That's making the UK a "hostile environment" for wealthy people and many are considering relocating to rival financial centres, said Caroline Garnham, a partner at London- based law firm Lawrence Graham who advises on tax planning.

The numbers choosing Switzerland will be small, and banks with Swiss roots, such as Credit Suisse Group and UBS, will probably find it easiest to move workers, said Stefan Schuermann, an analyst at Zurich-based Vontobel Holding.

"I don't expect huge masses; there is going to be some inflow," Schuermann said. "You don't easily move just because of tax issues if you have a family."

Those keen to settle in Geneva, a city of less than 200,000 on the doorstep of ski resorts such as Verbier, Chamonix and Megeve, will face housing constraints.

Just 92 detached houses were vacant throughout the area, which includes suburbs and outlying villages, on June 1 as population growth outpaced expansion of the property market, according to the statistic office.

Geneva's vacancy rate for all types of accommodation stood at 0.21 per cent, compared with 0.66 per cent in Zurich and 2.3 per cent in London. The median price of a four-bedroom house in Geneva was 1.62 million Swiss francs ($2.1 million) in the third quarter. The average price of a property in Kensington and Chelsea, London's most expensive borough, was £790,946 ($1.8 million) in October, according to Land Registry data.

At the International School of Geneva, where fees can total 28,000 francs a year, applications for next September are almost double the number of likely vacancies, said admissions director John Douglas. The school, whose alumni include former Indian Prime Minister Indira Gandhi and retired US Army General Norman Schwarzkopf, plans to add 600 places by 2012.

"It's increasingly difficult to get places," Douglas said. "It's not just tax but location and quality of life."

- BLOOMBERG