Sweden: Overview

RENTAL YIELDS

Yields are low to moderate

Swedish property yields are low to moderate according to Global Property Guide estimates (alas, our yields data has not been updated since September 2005). Mid-sized apartments (80 to 120 sq. m.) have yields at 6 to 7% while other sized properties have yields of around 3 to 4%.

Apartments in the second-largest city of Göteborg have yields of around 5% to 7%, while properties in suburban Stockholm have relatively lower yields, at 3% to 5%. Because rents are tied to the age of the property, the higher yields in the city-center reflect newer housing stock in those areas.

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TAXES AND COSTS

High rental income taxes and CGT

Rental Income: Non-resident landlords are taxable on rental income accruing in Sweden at a flat rate of 30%.

Capital Gains: Capital gains tax is levied at a general rate of 30%.

Inheritance: Inheritance tax in Sweden has been abolished since January 2005.

Residents: Residents are allowed certain allowances and deductions from their worldwide taxable income.

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BUYING GUIDE

Transaction costs in Sweden are low

Closing costs range from 4.5% to 7.5%. The buyer pays stamp duty (1.5%) and registration fee of SEK825 (€88.50). The seller pays the real estate agent’s fee (3% - 5%). When the buyer and the seller reach an agreement, the former pays a deposit ranging from 2% to 10% of the purchase price.

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LANDLORD AND TENANT

Strictly regulated rental market

Sweden’s rental market is strongly pro-tenant. The system is enormously counter-productive. Eight per cent of the Swedish population is queueing for a new apartment, with an average waiting time of 10 years

Rents: Rents are set far below reasonable returns-on-investment. Rents are little influenced by location, so that metropolitan units are especially under priced. The system is enforced by Rent Tribunals.

Tenant Security: Tenants have a right to prolong their contract, essentially for ever. The rule is totally asymmetric; a tenant may at all times give 3 month’s notice, even if the contract is fixed for a given period, to terminate the agreement.

In September 2006 the Alliance for Sweden, a centre-right coalition headed by Moderate Party leader Fredrik Reinfeldt, unseated the Social Democrat Party of Goran Persson. Since then, the housing system has been high on the agenda. An ongoing state review of the system argues for the removal of the current rental ceiling, so that private housing companies and individuals could set market rents.

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ECONOMIC GROWTH

The Swedish model

Sweden is one of the world’s most highly developed post-industrial countries with GDP per capita of US$36,900. Sweden has population of 9.18 million occupying a land area (450,000 sq. km) about the size of Germany.

The secret of its prosperity is probably the so-called "Swedish model" - a mixed economy founded on public-private partnership. Its main features are a centralized wage negotiations and a heavily tax-subsidized social security network.

GDP growth fell considerably last year, from 4.4% in 2006 to 2.8% in 2007. However, it still clearly exceeded the 1.6% average growth of the last decade. Inflation in Sweden has been one of the lowest among European countries since the mid-1990s. In 2007, inflation was 1.8%, slightly higher than 2006’s rate of 1.5%. Despite the economic slowdown, employment and the number of hours worked have increased rapidly since 2006. This strong tendency was still present in 2007 with the number employed persons increasing by 2.4%. The unemployment rate has dropped rapidly in the past two years, from 7.7% of the labor force in 2005 to 6.1% in 2007.

Sweden is a member of the EU since 1995, but decided against adopting the single currency (the Euro) in September 2003.

In a country ruled by Social Democrats for 65 of the past 75 years, the election by Fredrik Reinfeldt of the Moderate Party was seismic. Bold moves such as joining the euro or, one day, NATO, which Mr. Reinfeldt favors, remain off the agenda, at least for now. As he expresses it, “we are not pushing a neo-liberal reshaping of Swedish society. People don't like revolutions. If you ask somebody, do you want change, he will say that my neighbor needs it, but not me.”

For now Mr. Reinfeldt is sitting quite comfortably. But a sharp global downturn would test his leadership more than anything he has met so far. It could also mean that he and Mr. Borg, the pony-tailed finance minister, might regret not pressing ahead with bolder reforms when the economic climate was more benign.