Brexit real estate backlash fans hot Swedish property market

By Hanna Hoikkala / Bloomberg | September 30, 2016 9:36 AM SGT
Britain’s vote to leave the European Union may have cooled its property market but elsewhere in Europe, things are heating up fast.
In Sweden, where interest rates are negative, politics are stable and economic growth is brisk, a quick look at publicly traded real estate companies shows demand is soaring.
Newly built apartment blocks beside a waterway in the Sodermalm district of Stockholm, Sweden
Much of that is thanks to “a very positive Brexit effect”, Mikael Söderlundh, a Stockholm-based partner and head of research at Pangea Property Partners, tells Bloomberg.
Property shares in the largest Nordic economy are up about 35% over the past 12 months, which beats real estate shares across the rest of the region, according to Pangea’s estimates.
Part of the dynamic is linked to the crisis response of central banks following the Brexit vote, which means there is now an expectation of “ultra-low interest rates in the foreseeable future”, Söderlundh says. That is supporting the leveraged property market and is boosting real estate returns compared with gains on fixed-income investments, he says.
Some of the best-performing stocks are Victoria Park, which develops and manages properties in southern Sweden. It is up almost 60% this year. The company said on Sept 28 that it is targeting average annual growth of at least 12% in its property management result and at least 15% in net asset value, over time, helping drive its shares up as much as 3.5%.
Platzer Fastigheter Holding, a commercial property developer and owner, has soared about 47%. Sagax, which focuses on light industrial buildings, has gained more than 30%, and Castellum, a real estate investment firm, is up more than 20%.
Another Swedish real estate firm, D Carnegie & Co, in which Blackstone Group has built a stake, is up about 60%. Construction companies are also doing well, with Skanska gaining almost 20%. By comparison, Sweden’s 10-year government bond returned about 12% this year.
There was “a strong run for property shares” in Sweden after the Brexit referendum, Söderlundh says. Transactions in the Swedish property market are also heading for a record in 2016, with volumes so far about 30% above their level at this time last year, according to Pangea.
Meanwhile, the UK’s housing market is under pressure, with the luxury end in particular taking a hit since Brexit. The number of owners cutting prices for prime homes in the capital jumped 75% in the 10 weeks following the June 23 vote compared with the same period a year earlier, according to data compiled by researcher Lonres. And predictions for London’s commercial property also look grim.
But the trend in Sweden also predates Brexit. Its property market is also being buoyed by the country’s abnormally high growth rates by European standards — annual GDP was 3.4% in 2Q, Söderlundh says.
The Swedish central bank, which has had negative interest rates since February last year, has repeatedly warned that the country’s property market may be overheated. In a parliamentary hearing on Sept 27, Governor Stefan Ingves repeated the Riksbank’s pledge to do more if needed, while warning that Brexit has added to the uncertainty to which policymakers must respond.