Sweden Residential Real Estate Market Analysis 2023
Lalaine C. Delmendo | April 04, 2023
The Swedish housing market is now cooling rapidly, amidst falling property demand and construction activity, coupled with slowing economy.During 2022, the national house price index fell by 3.33%, in stark contrast to y-o-y increases of 15.78% in 2021, 10.26% in 2020, and 3.9% in 2019, based on figures from Statistics Sweden. It was the country's worst showing since 1993. In fact, when adjusted for inflation, house prices actually declined by a huge 13.35% last year.
Quarter-on-quarter, nationwide house prices dropped 5.65% (-8.52% inflation-adjusted) in Q4, the biggest quarterly decline in three decades.
“The pandemic initially led to uncertainty on the housing market, although it quickly recovered. Strong demand, above all for single-family homes and larger apartments, led to significant price increases towards the end of 2020 and throughout 2021,” said the Swedish Bankers' Association in its 2022 Mortgage Market report. “The increasing inflation and in particular the increasing mortgage interest rates during the spring of 2022 have resulted in the mortgage market starting to cool down and in housing prices starting to fall during the second quarter of 2022.”
By region:
- Greater Stockholm house price index fell by 5% y-o-y in 2022 (-14.8% inflation-adjusted), a sharp turnaround from annual increases of 16.3% in 2021 and 11.9% in 2020, according to Statistics Sweden. It was the biggest fall seen in the region since 2018.
- Greater Göteborg house prices declined by 4.5% during 2022 (-14.4% inflation-adjusted), following annual rises of 17.1% in 2021 and 6.2% in 2020. It was the region's worst showing in 29 years.
- Greater Malmo house prices fell by 5.3% during 2022 (-15.1% inflation-adjusted), in contrast to y-o-y increases of 18.1% in 2021 and 11.6% in 2020. It was the first annual decline in a decade.
Demand is now falling rapidly. During 2022, nationwide home sales declined by 8.7% y-o-y to 55,010 units in 2022, according to Statistics Sweden. This followed annual increases of 6.7% in 2021, 0.4% in 2020 and 2.9% in 2019.
Sweden's housing market is expected to remain subdued this year, amidst continued economic downturn and stubbornly high inflation.
Sweden's overall economy is slowing, too. The economy grew by a modest 2.4% during 2022, a slowdown from the previous year's 5.1% expansion, as private consumption was constrained by high inflation, which eroded real disposable incomes, and the increasing burden of mortgage loans as the central bank continues to tighten monetary policy.
There will be a mild recession in 2023, according to both the International Monetary Fund (IMF) and the European Commission, which reflects a slowdown in private consumption as households continue to struggle with high inflation and increased debt servicing costs. Overall, the IMF expects the Swedish economy to contract by 0.3% this year while the European Commission projects a slightly bigger decline of 0.8%.
Analysis
of Sweden Residential Property Market »
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.
Swedish economy will likely to contract in 2023, inflation remains high
Sweden’s economy grew by a modest 2.4% during 2022, a slowdown from the previous year’s 5.1% expansion. According to the European Commission, private consumption was constrained by high inflation, which eroded real disposable incomes, and the increasing burden of mortgage loans as the central bank continues to tighten monetary policy.
The Swedish economy had been growing by an annual average of 2.4% from 2013 to 2019 before contracting by 2.2% in 2020 due to the Covid-19 pandemic.
There will be a mild recession in 2023, according to the International Monetary Fund (IMF), which reflects a slowdown in private consumption as households continue to struggle with high inflation and increased debt servicing costs. Overall, the Swedish economy is projected to contract by 0.3% this year, based on IMF figures. The European Commission is a bit more pessimistic, expecting Sweden’s economy to register a 0.8% decline.
“The economy is expected to keep contracting in the first half of 2023, before picking up later in the year. Households are set to further adjust their consumption expenditure in response to the loss of real disposable income, high uncertainty and increasing unemployment,” said the European Commission. “Moderate consumption growth is expected from 2023-Q3 onwards as the inflation shock dissipates, real disposable income starts recovering and the housing market reaches its trough.”
The country recorded a general government finance surplus of SEK 164 billion (€14.4 billion) in 2022, mainly due to both a stronger primary balance and temporary factors lowering the Debt Office’s net lending. The surplus was equivalent to about 0.2% of GDP last year, in contrast to a deficit of 0.2% of GDP in 2021.
As a percent of GDP, Sweden’s gross public debt dropped to 31.3% in 2022, from 36.3% in 2021 and 39.5% in 2020. It is among the lowest in the European Union. The Swedish National Debt Office expects the government debt to remain low at 31% of GDP this year.
Unemployment rate stood at 8.2% in February 2023, up from 7.6% in the previous month and 7.9% a year earlier, according to Statistics Sweden. Nationwide unemployment averaged 7.5% from 2009 to 2019 before rising to 8.3% in 2020 and to 8.9% in 2021. In February 2023, there were about 458,900 unemployed people in Sweden.
High inflation persists. In February 2023, nationwide inflation accelerated to 12% - close to the 32-year high of 12.3% hit in December 2022, based on figures from Statistics Sweden. This is far above the Riksbank’s 2% inflation target. Inflation averaged just 1.3% in 2000 to 2020, before rising to 2.2% in 2021 and 8.4% in 2022.