Until recently, Stockholm appeared to have bucked the housing downturn. The Swedish capital’s prime property values have risen annually by three to 10 per cent in all but one of the past five years. However, this year prices have started to dip because of reduced mortgage availability and market inertia caused by heavy regulation.
One of the factors that had helped to keep prices buoyant is the low level of house building throughout the country. Only 12,000 to 18,000 new homes have been constructed each year since 2007. This is despite high demand thanks to a long-term shift from renting to ownership: some 65 per cent of homes are owner-occupied today according to Maklarsamfundet, the country’s association of estate agents, compared with 50 per cent a decade ago.
Although new tram lines and offices are under construction in Stockholm, there is little new house building. The capital’s oldest areas have few empty plots between tall 17th and 18th-century terraces; most other suburbs have densely packed apartments, some dating from the 1920s but the majority built since the 1970s, set in long rows of grey or red low-rise blocks.
Yet the country’s economy has remained robust despite the global recession. As a result homes in prestigious areas of the city – including period multi-story houses on Gamla Stan Island, and large apartments lining wide boulevards in the Ostermalm suburb – fetch up to £12,000 per square meter ($1,800 per square foot).
This market is now attracting top-end estate agents. Sotheby’s International Real Estate and Christie’s Realty are there and John Taylor, which specializes in homes in London, the Côte d’Azur and Switzerland, says the Swedish capital is its next target. “It’s the capital of Scandinavia, its people are well-educated and this will be a growth area for international buyers in the near future,” says managing director Daniel Masnaghetti.
Although the number of premium homes on sale in Stockholm is small, they are of a high standard. A 175 square meters (1883 square feet) apartment near Strandvagen in central Stockholm, with a balcony, two bedrooms, a dining room with space for 12 and period features, is on sale through Sotheby’s for £1.275 million ($2.06 million). A five-bedroom penthouse in a period property overlooking Humlegarden Park in the city centre is priced at £2.73 million ($4.41 million), through the same agency. Meanwhile, Christie’s is marketing Wenngarn Castle, a 12th-century building 40 minutes’ drive north from Stockholm, at £11.45 million ($18.5 million).
“Prices actually fell only briefly at the end of 2008 and bounced back strongly in 2009 and 2010,” says Michael Ball, professor of urban and property economics at the UK’s University of Reading. He also writes the Royal Institution of Chartered Surveyors’ annual European housing market survey and says that since 1997 Stockholm’s average house prices have risen around 300 per cent in real terms.
In recent months, however, Stockholm’s market has started to change for the worse.
“There’s been a loss of confidence in the general economy so owners are not selling and buyers are just waiting. Transaction volumes are likely to be quite low this year,” says Ingrid Eiken, chief executive of Maklarsamfundet. “Last year buyers could get a maximum 95 per cent home loan but recently the law changed to a maximum [of] 85 per cent,” she says.
Eiken, who is also a former political adviser, says house values have “dipped a few percent” this year.
While a fall in first time purchasers and stagnating sales levels are familiar problems in many other countries, Sweden has an additional problem: a high degree of regulation which some believe distorts its housing market.
For example, tax burdens play a major part in the culture of buying and moving. Until 2008 high annual property taxes based on size were said by some analysts to have deterred people from purchasing, but did at least incentivize turnover. As families grew up and children left home, parents would quickly downsize to smaller homes to reduce their annual property tax.
That regime has now been replaced by smaller annual taxes and a 22 per cent capital gains tax on all residential sales. As a result, people who have owned homes for many years – thereby enjoying substantial capital gains – are suddenly unenthusiastic about moving, even to a smaller and more appropriate property, because they will have to pay a large one-off sum.
Regulation is also heavy in the rental sector. In recent years most apartments have changed their status to New York-style condominiums, so they are governed by boards of owners within a particular block or estate. Any plan by an owner to let a unit to a private tenant has to be approved by the board – and in many cases, consent has been rejected for fear it may reduce the status or value of the block.
Even if approval is given, the rent earned on a privately-let apartment may be well below the market norm. This is because laws dictate that all rents should be comparable with those across a local area. Therefore an owner of a top quality unit has to levy a rent roughly similar to other, possibly lower quality units in the same part of town: failure to do means the tenant could appeal to a rent tribunal.
Amid the confusion, one small sector – holiday homes – is blossoming, thanks more international buyers.
The concept of the Swedish holiday home is different from that which exists elsewhere in western Europe. Most are cabin-style properties – often low value and sometimes lacking water or electricity – in rural areas and typically within a two-hour drive of the capital.
Estate agents say there are 500,000 such homes, predominantly Swedish-owned but with more recent buyers from Norway, Finland, Germany and even a few from the US and Russia.
Prices can reach £3,150 per square meter for the very best examples. With no restrictions on foreign property ownership, these are popular with overseas business people temporarily working in Stockholm and wanting holiday homes in Sweden after they leave.
However, Stockholm’s principal-home market remains almost wholly Swedish, for now at least, and may be about to become much more market-oriented should the downturn finally bite this year.