Sweden Real Estate Concerns Are Exaggerated, Pension Funds Say

July 5, 2023
Posted in News
July 5, 2023 veps

Some of the biggest institutional owners of Swedish real estate are pushing back against what they view as overblown worries that the country’s floundering property market will unravel, causing wider financial instability.

As interest rates have risen, share prices of landlords listed in Stockholm have plunged by more than 50%. Samhallsbyggnadsbolaget i Norden AB in particular has become emblematic of the sector’s woes after a credit downgrade forced the company, commonly known as SBB, to pull a share issue and put itself up for sale.

The turmoil has also made its mark on the Swedish currency, which slumped to an all-time low against the euro last week amid anxiety that the real estate turbulence could pose risks to financial stability.

“I think that foreign investors have an exaggerated concern about that,” Tomas Floden, the chief investment officer of AMF, one of Sweden’s biggest pension funds, said in an interview last week at a gathering of Sweden’s political and business elite in Visby. His fund had about 22% of its 734 billion kronor ($67.8 billion) in assets under management invested in real estate at the end of last year.

“I’m not worried about Sweden’s financial stability, and I’m not worried about the Swedish financial sector,” Floden said.

Still, prospects for the real estate industry have deteriorated at a fast pace in the past year as rising interest rates eat away at profits for property firms that took on large amounts of debt, often by issuing bonds.

Commercial real estate companies are now facing some $17 billion in maturities over the next 18 months, and as they are turning to disposals to shore up balance sheets, regulators have warned that in a worst-case scenario, forced sales can create a negative spiral of plunging valuations and loan losses at lenders.

Floden said question marks surrounding a number of real estate companies must still be straightened out before international investors regain confidence in Sweden.

source: bloomberg