Global Interdependence Center

Real Estate Market in Sweden

Mats Wilhelmsson Center for Banking and Finance

Royal Institute of Technology

1

Owner-occupied residential market

0

20

40

60

80

100

120

140

160

180

200

1975 1979 1983 1987 1991 1995 1999 2003 2007

Source: Statistic Sweden (SCB) and NasdaqOMX Valueguard-KTH House Price Index

2

80

90

100

110

120

130

140

150

160

200501 200603 200705 200807 200909 201011

Compared to…

0

50

100

150

200

250

300

350

400

450

1996 1998 2000 2002 2004 2006 2008 2010

Spain Ireland Finland Sweden

Source: ECB and SCB

3

On the one hand … on the other hand

0

20

40

60

80

100

120

140

160

180

Household debt, per cent of disposable income

0

2

4

6

8

10

12

Household interest payments, per cent of disposable income

Source: SCB

4

Why did not prices decline in 2007/2008?

• Interest rate

• Employment/unemployment

• Income

• Income and property tax

• Construction

5

0

1

2

3

4

5

6

7

Mortgage interest rate

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

1993 1995 1997 1999 2001 2003 2005 2007 2009*

Real disposable income

0

1

2

3

4

5

6

7

8

9

2005 2006 2007 2008 2009 2010

Unemployment %

% M.SEK

6 0%

2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009

Income tax reduction

0

5000

10000

15000

20000

New apartments (moving average)

7

-0.5%

0.0%

0.5%

1.0%

1.5%

1990 1994 1998 2002 2006

Difference between population growth and new apartments.

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000Building permits

Residential MA Office MA

Sweden at risk?

• The Riksbank’s inquiry (April, 2011) – “the high Swedish housing prices can largely be explained by

what are usually called fundamental factors – that is to say that there are natural economic explanations for the price increases that have taken place”

• IMF (September, 2011)

– No overvaluation – A significant net wealth buffer – Direct and life-long personal liability – Developed social security system – No buy-to-let market – Low construction

8

Commercial Real Estate Market

9

0

2

4

6

8

10

12

1980 1986 1992 1998 2004 2010

Cap rate-office Cap rate-residential

Source: Fastighetsvärlden

0

20000

40000

60000

80000

2000 2004 2008

Price-office Price-residential

At Risk?

10

0

10

20

30

40

50

60

Financial solidity (2010)

Indirect investments in real estate

11

0

100

200

300

400

500

600

700

800

-30

-20

-10

0

10

20

30

40

Index

Relative strength - OMX30

News

List of the best real estate climate in Europe

1. Munich

2. Istanbul

3. London

4. Paris

5. Stockholm

• Economic growth

• High sales volume

• Attractive yield gap

• Transparent market

• Rents on the residential rental market

• More expensive credit

• Re-financing problems

• A lot of newly developed retail

12 Source: Emerging Trends in Real Estate Europe – April, 2011

Thank you!

13