Banks have lent more than 4 trillion. crowns ($360 billion) to property owners
Photo: Reuters
JOHN O'DANNEL, MARIE MANN
For months, Sweden's government has tried to downplay the real estate crisis, which has shaken confidence in the state, by restating a simple message: some companies are in trouble, but not the country. Now real estate investment group Heimstaden Bostad, with $30 billion in assets and a wealth of homes from Stockholm to Berlin, is struggling with funding problems. This crisis deals a blow to one of its owners, Alecta, the country's largest pension fund. This undoubtedly raises the stakes for Sweden, which has taken a serious hit in its property market due to interest rate hikes in 2022.
This change brought an abrupt end to a decade of almost free money. Although the country is considered one of the richest in the Old Continent, it nevertheless has its Achilles heel, real estate. Banks have lent more than 4 trillion. Swedish kroner ($360 billion) to property owners. Burdened by these mortgages, Swedes are twice as over-indebted as Germans or Italians. The real estate crisis worsened a few days ago when pension fund Alecta, with 38% in Heimstaden Bostad, said the latter needed cash and could contribute. Swedbank estimates Heimstaden Bostad's current deficit at around 30 billion kroner ($2.7 billion). Sweden's financial regulator is initially investigating why and how the Alecta fund had invested $4.5 billion in the property giant, a troubled investment equal to 4% of its assets.
As the crisis spreads and escalates, the government appears ready for war, although it wishes it didn't have to act. Karolina Ekholm, director general of Sweden's Debt Office, has said that the government has shouldered a small debt load, so it can borrow more and intervene through guarantees or subsidized loans. Well-informed sources stressed that while the state was willing to help at first, it is aware of the backlash and political costs of supporting companies that had taken big risks.
Sweden is among the first European countries to which is troubled by rising interest rates because much of its real estate debt is short-term, making it a harbinger for the wider region. For example, the inflated cost of money has shocked Germany as well. Around half of property owners in Sweden have variable rate mortgages, so any rise in them increases their payment.
