After years of strong growth the Swedish economy is at full capacity and possibly overheating, but there are still good opportunities to be found in the property market if one knows where to look, delegates heard at the latest PropertyEU Nordics Investment Briefing.
'All investors focus on prime in Sweden, so there are no buyers for secondary,' Arvid Lindquist, head of research at Catella, said.
'That is where smart investors can get some very good deals in the next few years, especially as many listed property companies are upgrading their portfolios and selling assets in secondary locations. There are some excellent opportunities out there.'
The briefing was hosted at the offices of Catella Corporate Finance in Stockholm.
The market has become trickier now and requires more skill and more local knowledge and expertise, said Lindquist: 'Until recently the tide lifted all boats and it was difficult to make a bad investment in real estate, but now the tide has gone out and it is less forgiving to those who make mistakes. Investors have to be much more selective.'
By investing in secondary locations investors can also side-step the three main problems they usually face in Sweden: high prices, intense competition and the dominance of local players. ‘Sweden is a very expensive market for foreign investors, and it is also a tough competitive market, ruled by domestic listed and private property companies,’ said Lindquist. ‘
The shift to secondary locations makes sense also as the Swedish economy is re-balancing and becoming less capital-focused. ‘Since 2008 GDP growth in Sweden has been driven by private consumption and investments in residential property, but they have been concentrated in very few places,’ said Lindquist.
Sweden set to see a slowdown
Stockholm has accounted for 50% of GDP growth and investments, with Malmo and Gothenburg accounting for another 25% and the rest of the country having to make do with the remaining quarter.
'The resulting average 8-8.5% annual growth in house prices and 3.5% GDP growth is not sustainable and is now expected to slow down,' said Lindquist. 'The authorities are actively seeking a stabilization of house prices, which would reduce household debt and stimulate consumption, and becoming less focused on the big cities.'
Property prices are also likely to decline because supply is beginning to exceed demand after years of expansion of the build-to-rent sector, he said: 'Since 2010 resi has been seen as a safe haven and attracted strong interest from institutions and listed property companies so now there is an infrastructure that just didn’t exist before. In Stockholm supply of new homes has increased at least three-fold.'
The combination of investor interest, soaring housing prices and political will to increase supply has led to the current situation: demand for new homes stands at about 16,000 to 19,000 a year, while supply is now up to around 25,000 a year. The inevitable result is a slowdown in prices.
If Sweden is at the top of the economic cycle and on its gentle way down, Finland is at the bottom of the cycle and on the way up, Lindquist said: 'After some bad years the country is now undergoing a real recovery, but assets are still attractively priced and investors can find some great opportunities.'
