Where to Look
For those residential purchasers whose objectives are purely financial Sweden’s largest cities, Stockholm and Goteborg will be the first places to look.
The third largest city, Malmo, is a special case in that its employment problems have been significantly offset by the Oresund Bridge link to Copenhagen (where 10% of the city’s population go to work).
Research has shown a significant correlation between local immigration and property prices. Sweden’s population is expected to increase only slowly in the medium term but some areas of southern Sweden and the greater Stockholm area could see much larger increases.
Other smaller centres such as the university cities of Lund and Uppsala, Helsingborg (the HQ of IKEA) , Kalmar and Visby (on the island of Gotland) may have holiday rental potential. The main drawback is that the holiday season is concentrated into a relatively short summer season. Until recently, Sweden suffered a serious shortage of student accommodation but this is now being addressed so new opportunities in this sector may be limited.
Industrial/commercial property also provides attractive returns and compares particularly well with residential investment in terms of rental in the period since 2005. Sweden is Europe’s fourth largest real estate investment market and retail and office property is particularly important. Read Swedish residential property index 2006 pdf (right click, save as) .
Snags, Points to Remember, Legal & Otherwise
The chief drawback to investing in Swedish property is the complexity of the tax system (see below) and a certain amount of uncertainty about government policy in this area. On the plus side the process of buying property in Sweden in terms of title, legal formalities and obtaining finance is relatively easy. The Swedish Property Federation publishes plenty of information about the industry.
Substantial chunks of the residential sector; owner (occupier) cooperatives and public sector rental, are out of reach to investors. Foreign investors need to be aware that they are stepping into a complex situation (of an over-regulated housing market which seems to be in the process of (somewhat piecemeal) reform. Careful attention to news about changes is a must.
Construction costs are high and building plots are becoming more expensive.
The tax regime provides relief on mortgage interest payments. Property taxes are based on notional rental values which tend not to be realistic (normally 75% of actual rental values) or consistent but are generally low. Property taxes are set to go even lower as a result of legislation planned for this year.
VAT is levied on new building but the government has made concessions on the rate at which it is levied (normally 25%) in areas where demand is greatest.
Stamp Duty is levied at 3% for most legal entities and 1.5% for private individuals on the higher of the property tax assessment and the purchase price.
Income tax relief (for associated expenses) on rental incomes is set at 20% of rentals.
Capital gains tax on properties can be deferred when amounts realised are invested in another first home and tax valuations on property are 25% below market valuations. If the country’s property prices continue to rise, more and more owners with properties at the upper end of the range would fall into the net of Sweden’s wealth tax. However, the current administration are keen to abolish this well established feature of the fiscal landscape. Sweden abolished inheritance tax in 2006.
What to Read
The specialist USA Ibp house have published an expensive “Doing Business and Investing in Sweden Guide (World Business, Investment and Government Library)“. Invest in Sweden have published a brochure availablein powerpoint format: “Investment Opportunities in Swedish Real Estate“.