Back in April 2017, Bloomberg warned that the hotting up of Sweden's residential real estate market presented an investor risk, because banks like Swedbank and Dansk were overstretching their mortgage lending.
However, when the world-wide recession hit hard in 2008, Sweden's housing market suffered far less than other countries' did. The severe shortage of housing stock and a swift countermeasures undertaken by Sweden's government and central bank meant that Sweden's real estate market did not see a great deal of adverse change.
Olof Manner, head of research for Swedbank, a Stockholm-based financial services group, explained that prices had risen by about 50% since 2008. “I don’t think we have a bubble. But it’s very richly priced.”
He added that there were signs the house price boom was slowing down. Prices rose by 15% in 2015, compared to 2014. By 2016, this growth rate had dropped to 10%, and in January 2017, house price rises were merely 7% higher than they were in the same month a year earlier.
This is mostly due to tough intervention by Sveriges Riksbank, who ordered banks to apply stricter lending criteria when assessing mortgage applicants' debt-to-income ratio. Sweden's government also applied the brakes in June 2016, introducing mortgage amortization rules that force people to pay off their loans faster. Fixed mortgage rates have also gone up slightly.
The government's intervention meant that, from 1st June 2016, mortgage loans exceeding 50% of the property's value have to be amortized - paid back - at 1% every year for the duration of the loan term. Loans exceeding 70% or more of the property's value have to be repaid at 2% annually. This has had a calming effect on the market, but prices are still very high.
Speaking to The New York Times in June of this year, Elisabeth Hallberg, a broker and manager with Per Janson, a Stockholm-based luxury real estate agency, said how it was still a seller's market. “The problem for the real estate agent is not to find buyers; it’s to find sellers.”
She estimated that around 70% of house sale transactions undertaken by her real estate agency in the last 12 months all had multiple offers, and many sellers had actually received an offer before the first "open house" event had even taken place.
Stockholm's most sought-after residential area is Djurgarden, a leafy-green part of the city with lovely villas. Here a luxury apartment can easily sell for between 20 million Swedish krona (about $2,312,640 back in June 2017) and 100 million Swedish krona (ca. $11,563,200).
In Ostermalm, another well-to-do part of Stockholm, luxury real estate prices range from 3 million Swedish krona or $346,896 and 10 million Swedish krona ($1,156,320) at the lower end of the residential property scale. At the higher end, Ostermalm homes can easily command prices of 70 million Swedish kroner (ca $8.1 million) up to 100 million Swedish krona.
Due to the chronic lack of housing stock, Sweden's rental market is strictly regulated and not an investor's dream. Rents are set far below what could provide investors with a reasonable return on their investment, but it is for this very reason that housing stock is now in such short supply, many experts claim. There has been no incentive for developers to build new homes for lease with rental yields being so low.
Industry experts like estate agents, builders and developers and buy-to-let landlords have urged the government to abolish rent regulations and stimulate the construction of new homes by doing so.
Rental yields in newly built properties rose by a modest 3.9% year-on-year in 2015 to an average of 9,200 Swedish krona, according to Statistics Sweden, following from a rise of 1.7% in 2014 and 2.2% the previous year. With such low yields, the rental market has declined sharply over the last 20 years, meaning there are even less homes available for newly arrived tenants. Sweden's residential rental market has in fact developed a thriving black market. Bribes paid to get one's hands on a rental contract for a small apartment in any of the cities can be as much as 100,000 Swedish krona per room.
“Rent controls were supposed to enable people to live in central locations, but now it is having the opposite effect," explains Billy McCormac of Fastighets�garna property association in an interview with Global Property Guide.
McCormac added, “It is almost impossible for immigrants and new arrivals to penetrate this market – it is all about who you know and how much money you have.”
This picture isn't going to change until Sweden's government drops rent regulations in their present form and does what ever it takes to stimulate house building. House price rises will therefore remain robust, even if the market as a whole has cooled off a little.