• Sweden edition
 

Buying a Swedish apartment: an auction by SMS

Published: 21 Mar 2007 17:41 GMT+01:00
Updated: 21 Mar 2007 17:41 GMT+01:00

If the second-hand rental market in Sweden is a merry-go-round, the property market is a whirlwind.

Unlike the rental market with its long queues and little turnover, however, there are always apartments on the market. You just have to be willing to act fast, jump through a lot of hoops, and be prepared to shell out the cash.

Belgian Sige Goevaerts and his wife moved to Stockholm last year and spent four intense months house hunting. They looked at 50-60 apartments before they finally settled on one last November. He describes the whole real estate buying process as “an auction by SMS.”

In many parts of the world, the seller sets the price and then negotiates with potential buyers, with the final price landing somewhere in the middle. In Sweden, prospective buyers try to outbid each other – often resulting in a windfall for the seller.

“This does not exist in mainland Europe where my spouse and I come from. It’s just the opposite. The seller states a selling price and the interested buyer tries to get the price reduced,” says Goevaerts.

“The moment the bidding started, we realized that there was a huge difference between the initial quote and the final price,” he says. Goevaerts and his wife ended up paying 31% over the initial asking price.

Recently, a Swedish court found a real estate agent guilty of misleading potential customers with starting prices well below the market value of the property.

There are no laws regulating the bidding process in Sweden and the buyer has very few rights. As one American who recently purchased an apartment described it, “I have very little leverage in the process other than to say ‘no’ if the price gets too high.”

“In Sweden, only a written contract is binding for real estate, and that means that there is no guarantee that there are correct bids in the auction. The buyer has no rights at all in the auction process,” says Hans Lind, professor of real estate economics at the Royal Institute of Technology.

In addition to being tipped in the favour of the seller, the whole process is lightning fast. Showings are usually on a Sunday afternoon, and usually only last 30 minutes to one hour. And you’re usually not the only prospective buyer.

“It’s a very, very, very bizarre experience. Running around someone's apartment with 10 to 20 other couples at the same time doesn’t give you the best view of an apartment. Most often with shoe protecting plastics over your shoes, if you have not already taken them off,” says Goevaerts.

“As a foreigner, you often don't have the time to wait for your ‘bargain’ to show up. You have to get something as you need to get out of your second-hand rental,” he adds.

Bidding starts within a few days, and if the final price is satisfactory to the seller, the deal can be closed within the week. “In a week, normally the whole procedure is over,” says Goevaerts.

So why buy if there are so many pitfalls? Many people end up buying even if they’d rather not make such a large investment simply because of the lack of available rentals.

“When I moved to Stockholm six years ago, I didn't think I had enough money saved to buy an apartment. But when I discovered there was no decent rented accommodation to be found, I looked into the matter and found that with some money I had been saving towards a car, I had enough to buy a small two room apartment,” said Bryan Mosey, originally from England.

On the other hand, it’s also an investment that could pay off in the future. Being a buyer means that at some point you’ll be the one with an apartment to sell.

Lind says it’s quite common for people not to amortize (pay off the capital on) their home loans with the argument that prices will continue to increase. The capital is paid off to the bank when the apartment is eventually sold.

Mosey lived in his apartment for five years, during which time he renovated the living room and made improvements in other parts of the apartment, including adding a security door and new wooden flooring in the bedroom.

“The apartment sold for almost 150% of what it cost me originally and I earned my original investment back more than five times over,” he says.

Most of his profit went towards a new apartment, which he purchased together with his partner six months ago.

“Being newly built, the price was set at the signing of the contract two years before moving in. Since then, the market has continued to rise and going by recent sales within the area, the new apartment may already be worth 50-60 % more than it cost,” he says.

“If my partner and I were to sell today we would earn back our cash investment about four times over.”

In just the last twelve months, prices for an apartment in Sweden have increased by 13 percent in the last twelve months, according to Mäklarstatistik. Lind says prices have increased threefold in the last ten years.

But that may not last. Lind attributes the outrageous prices to the fact that “buyers make overly optimistic assumptions about the future costs.”

“Low interest rates and very strong income growth in Stockholm are the main reasons for increasing prices, but it might also be a bubble,” he cautions.

He says the academic opinion is that prices can be expected to fall soon and “perhaps rather dramatically if people start to be more pessimistic…about future costs, incomes, and prices.”

He recommends that prospective buyers make a sensitivity analysis of various situations, including a scenario where prices fall by 30% in the next three years.

“I think it is important to investigate the market carefully before entering this kind of auction. There is a rather large number of apartments for sale so one should not panic and get drawn into an auction with spiralling prices,” advises Lind.

“It is important to get a feeling about what the market price level really is and not overbid. Do not forget to check carefully what the monthly fee is and that the tenant-owner association (bostadsrättsförening) has a stable economic situation.”

Goevaerts also has a few tips for prospective buyers. “Determine your limit beforehand. You easily get carried away during the bidding,” he says.

He also recommends “getting your finances sorted out with your bank before starting the bidding.”

Finally, he suggests asking for a private showing of your prospective apartment when the bidding is coming at its end. “An apartment might look different without twenty other couples,” he says.

Links:

Description of the bidding process in English from the Swedish Board of Estate Agents (PDF).

Listings of real estate for sale (In Swedish):

Hemnet

Charlotte West (news@thelocal.se)

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