Sweden's house price rises accelerating
Lalaine C. Delmendo | May 20, 2021
Quarter-on-quarter, house prices increased 4.02% (3.88% inflation-adjusted) in Q4 2020.
- Greater Stockholm house price index rose strongly by 11.5% y-o-y in 2020 (11.2% inflation-adjusted), a sharp improvement from the previous year's 1.6% rise. Quarter-on-quarter, house prices increased 5.2% in Q4 2020 (5.1% inflation-adjusted).
- Greater Göteborg house prices rose by 6.3% (6% inflation-adjusted) during 2020, following a 6% increase in 2019. House prices rose by 3.7% during the latest quarter (3.6% inflation-adjusted).
- Greater Malmo house prices soared 10.7% (10.4% inflation-adjusted) in 2020 from a year earlier, more than double the 5.1% increase in 2019. Quarter-on-quarter, house prices rose by 2.6% in Q4 2020 (2.4% inflation-adjusted).
Despite the recovery in house prices, demand fell last year and residential construction activity was weak, amidst pandemic-related restrictions. The number of homes sold in one- to two-dwelling buildings fell by 5.1% to 53,444 units in 2020, according to Statistics Sweden.
Nationwide, dwelling starts in newly constructed one- to two-dwelling buildings fell by 9.4% y-o-y to 9,644 units in 2020 while starts of multi-dwelling buildings increased 7.3% to 40,728 units, according to Statistics Sweden. On the other hand, dwelling completions of one- to two-dwelling buildings increased slightly by 1% to 10,315 units but fell by 20% to 36,367 units in multi-dwelling buildings.
During Sweden's recent housing boom (2012-2019) house prices surged by more than 48% (38.4% inflation-adjusted). Over the past two decades house prices rose by a whopping 230% (155% inflation-adjusted).
The housing market is expected to remain buoyant this year, thanks to improving economic conditions.
Sweden's economy contracted by a modest 2.8% in 2020, far less than the 4.3% decline in the aftermath of the global financial crisis in 2009. Sweden did not impose a full lockdown, unlike most of Europe.
However, the second wave of infections that recently hit is expected to slow economic recovery this year. The European Commission projects the Swedish economy to grow by 2.7% this year and by another 4% in 2022.
Yields are moderate in Stockholm, Sweden
Swedish property yields are moderate. This year, we were unable to get yields figures because rents were hard to get in sufficient quantity to be reliable. When we surveyed them last year, mid-sized central Stockholm apartments (80 to 120 sq. m.) had the most generous gross yields, at 6 to 7%. Other sized properties seemed likely to have lower yields, at around 3 to 4%, and properties in suburban Stockholm also had relatively lower yields, at 3% to 5%, while apartments in the centre of the second-largest city of Gottenburg can yield around 5% to 7%.
Because rents are tied to the age of the property, the higher yields in the city-centre reflect partly the newer housing stock in those areas.
Generally, property prices in Stockholm vary in a range from €6,000 to €7,500 per square metre.
Round trip transaction costs on residential property are quite low in Sweden. See our Sweden residential property transaction costs analysis and Transaction costs in Sweden compared to other countries in Europe
High rental income taxes and CGT
Rental Income: Rental income is generally considered as business income and taxed at progressive rates. Income-generating expenses are deductible when computing the taxable income.
Capital Gains: Capital gains tax is levied at a general rate of 30%. Acquisition costs are deductible when computing the taxable gains.
Inheritance: Inheritance tax in Sweden has been abolished since January 2005.
Residents: Residents are taxed on their worldwide income at progressive rates.
Transaction costs in Sweden are low
Closing costs range from 7.26% to 9.26%. The buyer pays stamp duty (4.25%) and registration fee of SEK825 (€96). 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.
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.
Modest economic contractionOne of the reasons for Swden’s modest economic contraction of 2.8% in 2020 is that Sweden did not impose a full lockdown as seen in most of Europe.
However, the second wave of infections that recently hit the country is expected to slow economic recovery this year. The European Commission projects the Swedish economy to grow by 2.7% this year and by another 4% in 2022.
Even before the pandemic, the economy was already slowing. In 2019, economic growth was just 1.2%, the slowest expansion since 2013.
The Swedish crown appreciated by almost 8% against the euro over the past year to reach an average exchange rate of SEK 10.0903 = EUR 1 in February 2021, and by 20% against the US dollar to SEK 8.3443 =USD 1 over the same period.
Inflation stood at 1.4% in February 2021, according to Statistics Sweden, up from 1% in the previous year, but still below the Riksbank’s 2% inflation target.
Unemployment stood at 9.7% in February 2021, up from 9.3% the previous month and 8.2% a year earlier, according to Statistics Sweden. Nationwide unemployment averaged 7.5% from 2009 to 2019.
To cushion the adverse impact of the pandemic, the government introduced a stimulus package equivalent to about 12% of the country’s GDP last year, which includes additional resources for the health care system, a short-term work scheme, grants to companies, labor and education support, tax cuts, as well as tax deferrals and loan guarantees. As a result, the country recorded a budget deficit of around 4% of GDP in 2020, from surpluses of 0.5% of GDP in 2019, 0.8% in 2018, 1.4% in 2017, and 1% in 2016.
As percent of GDP, gross public debt was estimated to have increased to 42.6% in 2020, from 35.1% in 2019 and 38.8% in 2018, according to the Eurostat.