Wilhelmsson, Mats Sept 29 11

Global Interdependence Center Real Estate Market in Sweden Mats Wilhelmsson Center for Banking and Finance Royal Institute of Technology 1

Owner-occupied residential market 200 180 160 140 120 100 80 60 40 20 0

160 150 140 130 120

110 100 90 80 1975 1979 1983 1987 1991 1995 1999 2003 2007

200501 200603 200705 200807 200909 201011

2 Source: Statistic Sweden (SCB) and NasdaqOMX Valueguard-KTH House Price Index

Compared to‌ 450 400 350 300 250 200 150 100 50

0 1996

1998 Spain

2000

2002

Ireland

2004 Finland

2006

2008

2010

Sweden

3 Source: ECB and SCB

On the one hand ‌ on the other hand Household debt, per cent of disposable income 180 160 140 120 100 80 60 40 20 0

Household interest payments, per cent of disposable income 12 10

8 6 4 2 0

4 Source: SCB

Why did not prices decline in 2007/2008?

• Interest rate • Employment/unemployment • Income • Income and property tax • Construction 5

Mortgage interest rate

%

Real disposable income

M.SEK

7

1,800,000

6

1,600,000

5

1,400,000 1,200,000

4

1,000,000

3

800,000

2

600,000

1

400,000

0

200,000 0 1993 1995 1997 1999 2001 2003 2005 2007 2009*

Unemployment

%

Income tax reduction

9

14%

8

12%

7 10%

6 5

8%

4

6%

3 4%

2

2%

1 0

6

0%

2005

2006

2007

2008

2009

2010

2001

2002

2003

2004

2005

2006

2007

2008

2009

Difference between population growth and new apartments.

New apartments (moving average) 20000

1.5%

15000

1.0%

10000 0.5% 5000 0.0% 0 -0.5% 1990

1600000 1400000 1200000 1000000 800000 600000 400000 200000 0

1994

1998

2002

2006

Building permits

Residential MA

Office MA

7

Sweden at risk?

• The Riksbank’s inquiry (April, 2011) – “the high Swedish housing prices can largely be explained by what are usually called fundamental factors – that is to say that there are natural economic explanations for the price increases that have taken place”

• IMF (September, 2011) – – – – – –

No overvaluation A significant net wealth buffer Direct and life-long personal liability Developed social security system No buy-to-let market Low construction 8

Commercial Real Estate Market 12 10

8 6 4

2 0 1980

1986

1992

Cap rate-office

1998

2004

2010

Cap rate-residential

80000 60000

40000 20000

0 2000 Price-office

2004

2008 Price-residential

9 Source: Fastighetsv채rlden

At Risk?

Financial solidity (2010) 60 50 40 30 20

10 0

10

Indirect investments in real estate 800 700 600

Index

500 400 300 200 100 0 40 30

Relative strength - OMX30

20 10 0 -10 -20 -30

11

News List of the best real estate climate in Europe 1.

2.

3.

4.

5.

Munich Istanbul London Paris Stockholm

• • • • •

Economic growth High sales volume Attractive yield gap Transparent market Rents on the residential rental market

• More expensive credit • Re-financing problems • A lot of newly developed retail 12

Source: Emerging Trends in Real Estate Europe – April, 2011

Thank you!

13