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Everything you need to know is included in our Sweden Property Pack
Are you considering buying real estate in the land of Vikings? Are you questioning if it's a good idea to buy now or if it's better to wait until next year?
Various opinions exist regarding market timing. Your Swedish acquaintance might suggest that now is a perfect time to invest in property, whereas your spouse, who is originally from Stockholm, might have a different view and recommend waiting for more stability.
At Investropa, when we create articles or update our pack of documents related to the real estate market in Sweden, we dvocate for a fact-based mindset, rejecting unfounded opinions and baseless rumors.
We have thoroughly examined all the official reports and statistics available on government websites. Now, we have a comprehensive database of reliable information and we can help you determining whether it is currently advantageous to purchase real estate in Sweden.
Let's delve in!
How is the property market in Sweden currently?
Sweden is, today, an extremely stable country
Positive
Stability is the first factor to look at because it's key for long-term growth and profitability in real estate investments. It is an information you need as a foreigner looking to buy a property in Sweden.
You most likely already know that Sweden is widely known for its exceptional stability. The last Fragile State Index reported for this country is 20.9, which one of the highest values in the world.
Sweden has a strong economy fueled by its export-oriented manufacturing sector and its high-tech engineering sector. Additionally, the country has a long history of democratic rule and a well-developed welfare system, which has helped create a stable and prosperous society.
Now, let's shift our focus to the economic forecast.
Sweden will keep growing
Positive
Before buying real estate, assess the economic situation of the country.
Based on the IMF's outlook, Sweden will, in 2023, grow by -0.5%, which is disappointing. For 2024, the consensus estimate is 1%.
However, the negative growth rates are not here to stay since Sweden's economy is expected to increase by 6.6% during the next 5 years, resulting in an average GDP growth rate of 1.3%.
The moderate growth rate in Sweden means that property values are likely to increase steadily over time, providing a good return on an investment. Additionally, a moderate growth rate helps to prevent distortions in the market, making it easier for investors to plan for the long-term.
Nonetheless, GDP growth is not the only metric to look at.
Swedish business owners have lost their confidence
Negative
How do Swedish people perceive their economy? Relying solely on the GDP forecast may not provide an accurate assessment. Fortunately, in Sweden there is a standardized metric that is regularly published. It's not the case for every country, so we're lucky.
The Business Consumer Index (BCI) is a metric that evaluates the level of confidence business leaders have in the economy's current and future state. It is derived from surveys and assessments.
According to the National Institute of Economic Research, Sweden's data, the latest Business Confidence Index value is 2 for Sweden. It can be interpreted as a weak score.
One year ago, there was a stark contrast. Business operators were extremely confident, and the score soared to 26.
Business Confidence in Sweden is currently not at its strongest. However, this does not imply that the property market will experience a significant crash. A lower confidence score often indicates a temporary period of uncertainty or caution within the business sector, which is a natural part of economic cycles.
Hence, it is advisable to consider other metrics before deciding whether it's the right time to invest in property in Sweden.
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Sweden is delivering less building permits
Negative
If you're thinking of investing in property in a country, it's worth taking note of the number of permits issued for property development. When more building permits are issued, it means that people believe the property market is doing well and has good potential.
Unfortunately, the number of building permits delivered is decreasing in Sweden.
Over the last 12 months, according to Statistics Sweden, the number of building permits issued by the Swedish municipalities fell by 17.3%, from 82,608 to 68,313 units.
This is definitely a negative signal. Let's look at more data.
One last important point to consider is that fewer building permits result in a reduced supply of properties. If this is the case, it is likely that housing prices will increase in Sweden in 2024.
Is Sweden's housing market experiencing a market correction
Neutral
Sweden's home prices have increased by 14.7% in 5 years according to Valueguard.
It means that if you had bought a cottage in the Swedish countryside for $500,000 five years ago, then it would now be worth around $574,000.
Recently, the housing market in Sweden has been a topic of interest due to speculation about a market correction in house prices. Prices are declining months after months.
Stabilizing or declining prices shouldn't always be perceived negatively. The current period could signify a minor market correction, presenting real estate investors with improved prices. If so, it's a positive sign and an ideal time to consider buying a house in Sweden.
You can find a more detailed analysis of the real estate prices in our property pack for Sweden.
Everything you need to know is included in our Sweden Property Pack
Sweden's population is getting (a bit) richer
Positive
When you're looking to buy real estate, population growth and GDP per capita deserve careful consideration because:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In Sweden, the average GDP per capita has changed by 4.7% over the last 5 years. Despite being minimal, there is still some observable growth.
This means that, if you purchase a waterfront villa in Stockholm and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.
If you're considering purchasing and renting it out, this trend is a good thing. Then, there might be a rise in rental demand in cities like Stockholm, Gothenburg or Malmö in 2024.
No high rental yields in Sweden
Neutral
Rental yield is a widely used metric in real estate investing.
It's the annual rental income of a property divided by its price. For example, if a Swedish property is purchased for 3,500,000 SEK and generates 210,000 SEK in annual rental income, the rental yield would be 6%.
Based on the data provided by Numbeo, rental properties in Sweden promise gross rental yields from 1.5% and 4.2%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Sweden.
It indicates a moderate level of income generation.
As we mentioned before, the amount of available real estate will stay the same (and housing prices may be stable), but more wealthy people will be looking to rent properties. Then we can conclude that rental yields might increase in Sweden in 2024.
Everything you need to know is included in our Sweden Property Pack
In Sweden, expect moderate inflationary effect
Neutral
In two words, inflation is when prices soar.
It's when your customary cup of Swedish fika costs 45 Swedish kronor instead of 40 Swedish kronor a couple of years ago.
If you're contemplating investing in a property, high inflation can offer several advantages:
- Property values have a tendency to increase over time, potentially leading to capital appreciation.
- Inflation can result in higher rental rates, thereby increasing the cash flow from the property.
- Inflation reduces the real value of debt, making mortgage payments more affordable.
- Real estate can act as a hedge against inflation, effectively preserving the value of the investment.
- Diversifying into real estate provides stability during inflationary periods.
According to the IMF, over the next 5 years, Sweden will have an inflation rate of 13.3%, which gives us an average yearly increase of 2.7%.
This data shows that Sweden could face inflation in the near future, which would lead to an increase in prices. Consequently, purchasing a property could become more expensive. However, if you buy now, there is a chance that your investment will appreciate, allowing you to sell it at a higher value in the future.
Is it a good time to buy real estate in Sweden then?
Let's wrap things up!
Opting to purchase property in Sweden in 2024 may not be the most advisable decision, largely due to a mix of unfavorable signals outweighing the positive indicators. While Sweden is renowned for its stability and continued economic growth, certain factors merit caution. The current state of the housing market, indicated by a potential market correction, suggests that property prices might not be as reliable as they once were. Additionally, the lack of high rental yields makes the investment proposition less appealing for those seeking substantial returns.
Moreover, neutral signals add to the hesitancy. While Sweden's stable economic growth supports the overall market, the anticipation of a moderate inflationary effect could impact the purchasing power of potential property buyers. This factor contributes to the uncertainty surrounding the real estate market's future performance.
More prominently, negative signals cast a shadow on the investment landscape. The loss of confidence among Swedish business owners raises concerns about the country's economic trajectory. This apprehension could lead to reduced business activities, potential job losses, and an overall economic slowdown, which could adversely affect the property market's stability.
Furthermore, the decrease in building permits being delivered indicates a potential decrease in new property development. This scarcity in supply could lead to stagnation in the market and even inflated property prices, making it less opportune for buyers to enter the market in 2024.
In summary, 2024 might not present the most favorable conditions for property investment in Sweden. Despite the country's stability and growth, the combination of a potentially correcting housing market, low rental yields, and negative indicators like diminished business confidence and reduced building permits suggests that prospective investors should exercise caution when considering property purchases in Sweden during this period.
We genuinely hope this article has been helpful and informative to you!. If you need to know more, you can check our our pack of documents related to the real estate market in Sweden.
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This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
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