The Unassuming Economist

From the IMF’s latest report on Sweden:

“The real estate market is experiencing substantial weakening. Mortgage and CRE borrowing grew strongly during the pandemic. Like in other advanced countries, house prices were fueled by the easing of monetary policy and macroprudential regulation, fiscal support, and a change in dwelling preferences towards larger units. Both residential real estate (RRE) prices and total household debt in relation to income peaked in Q4 2021. RRE prices started to decline in the second half of 2022, registering a 16 percent decline by end-year from their March peak. Shares of CRE firms listed in Stockholm have lost more than 40 percent of their value in 2022, and more companies face the risk of downgrades spurred by their deteriorating debt profiles as they need to rollover maturing bonds at higher interest rates

(…)

Limited reforms are taking place to address housing market distortions. Recent actions focused mainly on the supply side of the market through providing investment subsidies for rental and student housing, shortening planning processes, and simplifying permits application. These reforms should be supplemented with lowering taxes on deferred capital gains, a gradual removal of interest rate deductibility, and increasing the extremely low property taxes (Annex VII; Box 4). In lieu of the tax breaks, social protection could be provided in a more efficient way, including through expanding the housing allowance. Easing rental controls and simplifying building codes is also vital to bringing more dynamism to the market.”

Also see a special chapter on “Sweden’s Corporate Vulnerabilities: A Focus on Commercial Real Estate“, and Sweden’s Financial System Stability Assessment report.