Recent newspaper reports in Sweden about private wealth have claimed that 20% of Swedes over 20 years of age are kronor millionaires ( 6.6 kronor = 1$) and this wealth is primarily (70%) vested in property, one of the reasons why Swedes have been getting wealthier recently. Although Stockholm’s OMX share index has risen by almost 40% since July 2006, the rise in house prices, at 9% in the last 12 months, has been impressive also.
The average house price for the whole country is 1.7m kronor but it is almost double this amount in the capital – 3.2m kronor. The trend seems to be on the rise with a national average house price of 4% in the second quarter. The northern province of Vasternorrland has seen an enormous 11% increase in this period.
Off the cuff conclusions that could be drawn from this situation are that some Swedish investors may be realising their stock exchange profits and re-investing them in housing and that for younger Swedes it must as if the first few rungs of the property ladder are being knocked away. Unfortunately for them, Sweden has traditionally had a rigid, controlled market in rented accommodation as well.
The background to Sweden’s housing market is a tax regime providing relief on interest payments and low property taxes set to go even lower as a result of legislation planned for this year. The OECD itself has seen fit to criticise the benign property tax regime in relation the country’s high taxes on income and employment. It looks as if property ownership as a kind of sanctuary from Sweden’s high tax regime.
Capital gains tax on properties can be deferred when amounts realised are invested in another first home and tax valuations on property are 255 below market valuations. However, Sweden’s wealth tax will start to bite increasingly unless allowances are made for increasingly expensive homes; even a couple’s wealth tax allowance of 3m kronor is not enough to enable them to escape wealth tax on an average Stockholm residence ( OECD: ECONOMIC SURVEY OF SWEDEN 2007: FISCAL ISSUES RELATED TO THE HOUSING MARKET).
As for the question of any potential for overseas investors, there do seem to be opportunities. Although Swedish businesses in the past have tended to own their own commercial premises, since 2000 there has been a trend towards the ‘American’ model of liquidating these assets to give leaner balance sheets. ABB, NCC, Sweden Post and SAS have all gone down this road and GE Capital and Morgan Stanley were the first investment banks to get involved in the Swedish property market in the late 1990s (read this thesis & report from Savills throwing more light on the situation).
Other Factors in favour of investing in Swedish property are the relatively high level of liquidity, low transaction and legal costs and, in the case of German finance, similarities in the countries’ legal systems. Real estate investment turnover was about 190m kronor in 2006, of which overseas investment accounted for 40%.
For the overseas investor wishing to make a direct investment in Swedish residential property the outlook is also encouraging. This market is also relatively liquid and the purchase process is straightforward and transparent. Any citizen of any other European country can own property in Sweden. Swedish mortgage providers will loan up to 75% of a property’s value but they tend to exclude its rental potential when assessing the borrowers ability to pay. An alternative to direct purchasing of individual properties would be membership of a property owning syndicate which are normally listed vehicles. Investment in one of these should, for instance, comply with the UK’s new self invested pension regulations.