Real Estate

• Introduction
• The General Real Estate Market
• Commercial Property
• Stockholm
• Gothenburg
• Malmö
• Residential Property
• Buying Property
• Real Estate Taxes
• Associations of Owners, Tenants

Introduction

Swedish real estate has a number of features that make it especially attractive to foreign investors:

• No restrictions on property ownership by foreigners.
• Generally high standards of design, construction and maintenance.
• A very high percentage of newly-built properties, with more than half of all apartment houses built after 1960.
• Some of Europe's most competitive commercial property prices and rents.
• Commercial building rents are unregulated, while residential rents are becoming less controlled and more based on market demands.
• Well-established system of private cooperative apartments (similar to condominiums in the United States).
• Almost all commercial buildings, and most apartment houses, are heated by highly-efficient central district heating systems.
• Clear-cut and relatively uncomplicated regulations regarding zoning and property use.
• Abundant land available for development, but only in compliance with municipal and regional land-use plans and strict environmental considerations.
• Strong tenant and owners' associations.

The General Real Estate Market
Sweden, like many other nations, experienced a real estate boom in the 1980s, followed by a sharp decline, with over-leveraged speculators going bankrupt. Banks foreclosed on a large number of properties in the early 1990s, in addition to taking over some failed real estate companies. The situation has now stabilized, and in 1996 banks started to sell off properties or list their real estate holding companies on the stock market.

The greatest price appreciation in the 1980s was for commercial properties in the large cities. These prices fell sharply, some by half since the peak year 1990. Prices stabilized by 1994, and have remained at those levels.

At the same time, there is a trend towards privatization of municipally-owned real estate companies, which own almost 40 percent of Sweden's apartment houses. (Private owners and housing cooperatives each own about 30 percent.) Public sector real estate, used for State, county or municipal offices and services, is also being reorganized under public corporate ownership to some extent. Almost all commercial property is privately owned.

Insurance companies, construction companies, about 30 real estate companies listed on the Stockholm Stock Exchange and bank-owned companies are the dominant private property owners in Sweden. The 20 largest of these companies own Swedish property with market value of close to SEK 200 billion. The assessed value of all of Sweden's residential and commercial properties (excluding single-family homes) is about SEK 750 billion. Of this, about 60 percent is for apartment houses.

General deregulation and Sweden's joining the EU have meant that foreigners are now able to buy real estate in Sweden without restrictions. However, special permission may be required for purchasing holiday homes in some municipalities. Swedes, as well as foreigners, must obtain approval to buy farm land or forests in some regions.

Commercial Property
Commercial property includes office and retail buildings, factories, warehouses, and similar real estate. The commercial market is dominated by several dozen large construction/real estate companies, insurance companies, and companies established by banks to hold foreclosed properties. Their portfolios may contain hundreds of buildings located nationwide. There are also a number of smaller real estate companies whose holdings are locally concentrated.

Institutions, mainly insurance companies and bank-owned companies, own about 30 percent of total commercial properties in Sweden. The 30 real estate and construction companies listed on the Stockholm Stock Exchange own about 15 percent.

As of 1996, the supply of commercial property is greater than demand. Construction boomed in the 1980s, with about 1 million square meters built annually. As a result of the recession, the figure dropped by one-third in 1991 and 1992, and was even lower in 1995 and 1996. The boom followed by the recession is the reason for the current high vacancy rate of about 10 percent for office and industrial buildings for the nation as a whole.

Vacancy rates are somewhat lower in the three main municipal areas of Stockholm, Gothenburg and Malmö. Rental levels are also considerably higher in these regions than in smaller cities.

Commercial property leases generally run three years and are indexed to inflation.

Stockholm
Stockholm, Sweden's capital, and its surrounding suburban areas, have a population of 1.7 million, or 20 percent of the nation's total. Stockholm is the financial and commercial center of Sweden, and a large number of major companies have their head offices here. One third of Sweden's high-tech industry is located in the Stockholm region, which is the fastest-growing area of Sweden.

Located on the Baltic Sea, at the entrance to the large Lake Mälaren, Stockholm is known for its beautiful 17th and 18th century waterfront buildings. The city is built on 14 islands, and the waters of the city are so clean that they are used for swimming. Salmon-fishing, free to all, is a very popular sport in the very downtown heart of the city. Stockholm has been nominated by the EU as the 1998 European Cultural Capital.

Stockholm has a number of internationally-known scientific institutes and universities, with a student population of 50,000.

In early 1996, annual rents for office space in prime downtown locations were about SEK 2,200- 2,700 per square meter per year. The highest rents, as expected, are for prestige addresses. Some leases for top-quality offices have been signed for SEK 3,000 per square meter per year. However, office space in other central business locations has been renting at SEK 1,600-2,200 per square meter per year.

Rents for central location offices fell by some 40 percent between 1990 and 1993. But rents for prime properties recovered, and in 1996 were almost at previous peak levels.

Office vacancy levels in central locations were about 7 percent in 1996, compared with a vacancy rate of 15 percent two years earlier. However, in the Stockholm suburbs, vacancies have increased to between 10 and 15 percent, and in some areas even higher. This has meant that suburban office rents have not increased much, and in 1996 were between SEK 700 and SEK 1,300 per square meter per year.

The high vacancy rates in the suburbs will mean very little new construction in the immediate years ahead, despite expansion of business in the region. The private sector is expected to continue to expand, especially for information technology businesses needing office space. But cutbacks in the public sector will release office space.

Industrial premises for light industry are found mainly in the suburbs of Stockholm. There is no heavy industry in the region. Industrial property vacancies range from 10 to 20 percent. Rents are SEK 400-800 per square meter per year.

Retail vacancy levels are very low, only 1-2 percent, in central Stockholm. Rents vary considerably, depending on location. In 1996, rents at prime locations ranged from SEK 3,000 to SEK 6,000 per square meter per year, and even higher for space in the busiest shopping arcades. In other parts of downtown, rents ranged between SEK 1,500 and SEK 2,500 per square meter per year.

Gothenburg
Gothenburg, the nation's second largest city, with a population of 700,000, is located on the west coast. It is Sweden's major port and an important industrial center.

Rents for prime-location office space were between SEK 800 and SEK 1,100 per square meter per year, with top rents of around SEK 1,500 in 1996. The vacancy level is about 8 percent (mid-1996). Rents fell during the recession, resulting in a trend to move back from peripheral areas to the city center.

Several industrial parks are located on the outskirts, as are several of Sweden's largest industries, including the main Volvo assembly plant, and the headquarters and Swedish factories of SKF (roller bearings) and ESAB (welding equipment). Hasselblad, the camera-maker, has its headquarters and factory in a downtown waterfront building, where the company was founded over 100 years ago.

Demand for industrial property has increased following the recession, but the vacancy rate is still high, between 12 and 15 percent. Rents are around SEK 300-400 per square meter per year.

Retail vacancy space is low, about 1 percent, in downtown areas. Rents vary largely depending on location, but have been ranging from SEK 2,000 to SEK 3,000 per square meter per year.

Malmö
Malmö, on the south coast, is expected to show considerable growth following the completion of a bridge and tunnel linking the city with Copenhagen, Denmark, across the Straits of Öresund. The 16-kilometer-long bridge and tunnel, for both rail and vehicular traffic, will be opened in 2000.

The new link, which had been discussed for over 150 years, will definitely make Malmö Sweden's "Gateway to the Continent". Malmö is Sweden's third largest city, with a population of 500,000. But the Malmö-Copenhagen metropolitan area has a population of 2.2 million. The two cities are now connected by ferries.

Commercial property in Malmö is generally older than in Stockholm and Gothenburg. Office rents in the central area range between SEK 900 and SEK 1,300 per square meter per year. The vacancy level, for high quality offices, has been stable, at 9-12 percent.

Industrial premises have vacancy levels of around 10 percent, but this has been falling slightly. Rents range around SEK 350-500 per square meter per year. Locations on ring roads around the city and with good connections to the Öresund bridge are most attractive.

Residential Property
The Swedish housing market is both tightly regulated and unregulated: Rents are regulated, ownership of homes and private cooperative apartments is not.

The rental market has been subject to extensive government controls and regulations ever since the second world war, when they were instituted as temporary measures. However, there are some gradual moves being taken toward a free market rental situation.

A system of rent controls for older dwellings has meant very low rents for highly attractive apartments in prime locations. But there are long waiting lists for such desirable apartments. A considerable number of these apartment houses were converted into private cooperative apartments in the 1980s.

Newer, massive apartment developments in suburban areas, which were built in a major state program in the 1970s and 1980s, are less desirable because of poor general planning, high density and proportionately higher rents.

About 71 percent of dwellings in apartment houses are rental units, while the remainder are cooperative units. Only about 11 percent of single family homes are rented out. Municipal housing companies own 40 percent of apartment houses, private landlords own about 30 percent, and private cooperatives own 30 percent.

There are no controls on rents of single family homes or of private cooperative apartments. However, most private cooperative by-laws have tight restrictions and regulations covering subletting of units.

Apartment rents in Sweden averaged SEK 675 per square meter per year in early 1996. This would mean SEK 5,625 per month for a 100 square meter (approx. 1,000 square feet) apartment. However, rents for the few new apartments built in the center of Stockholm are about SEK 1,450 per square meter per year.

Rent includes heat and hot water, but not electricity. Apartments are rented with all major kitchen appliances, and there is usually a common laundry facility in the building or washing machine in the apartment. Rents of almost all apartments are based on collective agreements between tenant and landlord associations.

Residential renting is covered by the Tenancy Law, (Hyreslagen) which contains a comprehensive set of rules for such things as terms of tenancy and notice, conditions of renting, use and care of property, subletting, forfeiture of tenancy and eviction, and setting of rent and security.

There is no shortage of rental units for anyone willing to pay free market prices. There is a good selection of sublet apartments and single family homes available for long-term leases to diplomats (mainly in Stockholm), foreign business people, and others. Rents in these cases are based on individual negotiations between tenant and landlord.

Buying Property
Real estate brokers, or estate agents, are normally used when buying and selling property. Although commercial property transfers have generally been directly between seller and buyer, brokers are being used more frequently because of the large amount of property on the market. The seller pays the broker's commission, which is normally 4 percent on the sale price of a single family home, 3 percent on an apartment building, and a negotiated fee on large commercial properties. Brokers are generally registered and insured.

Property valuers normally work independently of brokers. Prospective buyers generally hire an independent engineer or contractor to examine a property before purchase. The seller may be liable for costs of repairing faults hidden at the time of sale but discovered later.

The conveyance of real estate in Sweden is a surprisingly simple procedure. Unlike the case in the United States and in some other countries, attorneys are not needed for home or condominium purchases. However, attorneys are generally consulted in commercial or business acquisitions.

Paperwork is minimal, and generally quite routine. The real estate broker can handle all details. Buyers usually take over existing long-term, fixed-rate mortgages. The law does not require properties to be sold unencumbered, that is without loans, and buyers and sellers don't expect them to be.

New mortgages are generally granted quickly and easily, and compared with American standards, with an amazing lack of bureaucracy. However, as a result of the banking and real estate crisis, banks have become far more strict in granting loans on commercial property. Some international finance companies have opened offices in Sweden to compete for commercial property loans.

Lenders are commercial banks, mortgage banks, insurance companies and finance companies. Banks usually limit home loans to about 75 percent of the value of the property. Interest rates for the housing sector are about 1.0-1.5 percentage points above interest rates of government bonds. Loan rates are generally fixed at one to five years, but can be up to ten years. Variable interest rates are available. State interest subsidies are available for new residential construction and for residential property built or renovated after1985.

The buyer must apply for title deeds within three months of the transfer. A stamp duty is charged on registration of the title deed. During 1996 and 1997 the duty is 0.5 percent of the purchase price if the property is acquired by an individual, or 1 percent if acquired by a legal entity.

Real Estate Taxes
Value added tax, VAT, is paid on expenses for construction and maintenance of a building and on management costs. Housing rents are excluded from VAT. But commercial rent is liable to VAT, at a rate of 25 percent.
No VAT is payable when a property is sold. Residential property is subject to a national property tax of 1.7 percent of assessed value. Newly-built or extensively renovated housing and buildings are exempt from property tax for the first five years, and are then taxed at half the full rate for the next five years.
The assessed value corresponds to 75 percent of the market value. Through the use of computer systems, adjustments are made every year.
As of 1996, there is a property tax of 1 percent of assessed value on non-residential properties, and 0.5 percent on industrial properties.

Associations of Owners, Tenants
Property owners in Sweden are generally members of regional associations affiliated with the Swedish Federation for Rental Property Owners (Sveriges Fastighetsägarförbund). Some 20,000 property owners, with a total of more than 44,000 properties, are members. The organization provides a wide range of services, including legal, technical and financial consulting, access to professional property management, assistance in negotiations or disputes with tenants and authorities, favorable terms for purchasing of oil, insurance, appliances, etc., and serves the interests of members in contacts with politicians and the media. The federation is a member of the Union Internationale de la Propriété Immobilière.
Single family home owners have their own local associations affiliated with a national organization.
Residential renters are organized into local associations that are members of the National Tenants' Association (Hyresgästernas Riksforbund). Normally, a small percentage of rent is paid as dues to the association. The association negotiates rents with landlords' associations, represents tenants in disputes with landlords, and acts on behalf of tenants in contacts with politicians and the media (see appendix for list of commercial real estate agents and consultants).

Rents

Source: Catella Information and Analysis

© 1996 by Invest in Sweden Agency