(edit title) Confused about bostadsrätt How does the avgift work? Options

[rty777-NL]

Okay, so let's take some random bostadsrätt I can see here online.

The price of the thing is 1 695 000
But then there is some avgift per month: 3 626

What does this mean? This confuses me. Does this mean I have to take a mortgage at the bank to pay off the 1 695 000 every month to the bank, PLUS pay the 3 626 avgift per month?

Let's say I eventually pay down my debts. In fact, let's hypothetically just assume that I can pay the 1 695 000 in cash and just own the goddamn place. Will I still have to keep paying that goddamn 3 626 avgift every month?

Can someone explain this? Thanks.

[Etheric]

Yes you have to pay both. The avgift is completely separate from the mortgage, and goes to the BRF (housing association) that owns the apartments. It covers things like cleaning of communal areas, property tax, heating and water (but not electricity). Normally the BRF also has (large) loans which need to be paid off as well (unless it is an old one and they have been paid off already). Some places they also make a repair/renovation fund for each apartment as well out of the payment (so if you get the kitchen redone then the BRF will pay some of the cost).

You can get a copy of the accounts of the BRF to get a better idea of where the money goes (the estate agent will have one, they normally give them out in the brochures that goes with the flats.). It is also good to check if the BRF is making a surplus or not (which will have implications on if they are likely to change the avgift soon).

[gplusa]

Contrary to popular belief, there is nothing evil about an avgift. It is simply your normally monthly home operating costs bundled up in one monthly bill. Heating, water, mechanical ventilation, building insurance, exterior maintenance, local property taxes, base television connection, rubbish collection, and so forth. You would still be using those services every month, long after your mortgage for buying the apartment was paid off. You just get one monthly bill instead of 10. As mentioned above, the avgift may also include for repayment of any loans taken out to build the apartment building although I would suspect that, with such a relatively low avgift fee, your building has a low level of debt and you are essentially only paying for your running costs. Looks like quite a good deal. Sometimes, again as mentioned, they hold back a few hundred kronor of your avgift for you to use when renovating your apartment. That money is your's, but can only be used by you to paint, paper, buy new kitchen appliances for etc, the inside of your apartment. This helps to ensure that all apartments are keep to a high standard, which helps them all to hold their resale value. When you sell or buy an apartment, any renovations fund money generally goes with the apartment. We bought an apartment which had 50 000 kr in it's fund, so we were able to immediately fully renovate 2 bathrooms at no cost to us. Our building also had a gym, sauna, communal party/kitchen room, hobby workshop, overnight visitors apartment, bbq area, all of which were operated and maintained out of the avgift fee. The people who set the avgift fee for your apartment are also people who live in the same building as you. So the fee is not designed to make a huge profit, or to rip anyone off.

[Puffin]

One of the things that is hard to understand is that when you buy a bostadsrätt you are not actually going to own your apartment - they work like the coops in the USA
- you are buying a share in the association that owns all of the apartments - and it comes with the right to live in a particular apartment but not ownership - this is what the mortgage covers
- so you and your neighbours will jointly own the buildings, garden, common areas etc - you all form a board to manage the block so it is you and the neighbours who decide the level of the fee
- the association also covers the running costs such as insurance, washing room. major repairs etc etc and this is what the monthly fee covers

[Norrlands Turk]

I don't get why this monthly avgift on bostadsrätt has to be so high. I mean you can buy a decent apartments in many places in Sweden for ridiculous prices, like 100,000 skr. But then you are also required to pay like 4,000 in avgift.

If you are suppose to pay that much every month, why not just rent or get a villa/radhus instead? (newbie, learning the terms now..)

[gplusa]

Sale prices and avgift fees are often linked. An apartment with a low avgift often has a higher selling price as it's operating costs are more attractive. And vice versa. An apartment which still has a building mortage to pay often has a lower selling price to compensate for the higher avgift.

No one can build an apartment in Sweden for 100 000. The kitchen alone will cost more than half of that. So it's not reasonable to expect that you can buy such an apartment which doesn't have some construction costs still to be repaid.

Let's say that you and some friends formed a company and took out a loan together to build homes for yourselves in a new subdivision. When you sell your house, you also give up your membership in that company. The new purchaser of your house takes your place within the company, and assumes your share of the responsibility for the construction loan. The purchaser may have a personal loan which they took out to buy the house from you, but that's their personal loan and nothing to do with the construction loan that you and your friends took out to build your houses. The amount that you sold your house for was much cheaper than other houses of a similar age and type, because your house came with a construction debt still attached to it.

You couldn't buy a house/radhus for 100 000. At least, not one that wouldn't require a considerable amount of extra capital in repairs or renovations. More likely you would be paying 1 000 000 for a villa which is of the same standard as an BRF apartment. And you still have to pay for all the operating costs mentioned earlier such as heating, water, insurances, council taxes etc. You don't buy a house and then get to live for free.

BRF living isn't for everyone. But the total capital and operating/maintenance costs combined, during the time you live there, are often not a whole lot different between a house and an apartment.

[Puffin]

I don't get why this monthly avgift on bostadsrätt has to be so high. I mean you can buy a decent apartments in many places in Sweden for ridiculous prices, like 100,000 s ... (show full quote)

I don't get why this monthly avgift on bostadsrätt has to be so high. I mean you can buy a decent apartments in many places in Sweden for ridiculous prices, like 100,000 skr. But then you are also required to pay like 4,000 in avgift.

If you are suppose to pay that much every month, why not just rent or get a villa/radhus instead? (newbie, learning the terms now..) ... (hide full quote)

As gplusa says - you will still be paying those bills if you buy a villa - water, building insurance, repairs, property taxes etc etc - it is just that in a villa you will get 10 brown envelopes instead on a single charge

Renting may or may not be cheaper depending on where you live - but you hve no asset to sell either

[Essingen]

There is one fundemental difference between buying a house and buying an apartment...debt. With a house, you buy it debt free, with an apartment it is very unlikely that you would buy it debt free, regardless of whether it is a new apartment or an old one. In new apartments, interest on the debt might amount to around 50% of the monthly charge.

Personally I would be very cautious about buying a new apartment in a major Swedish city at the moment. The price level is running ahead of earnings growth, and has been for some time. OK so there is a shortage of property and people are moving into cities like Stockholm in great numbers, but it is dificult of see how this gap can continue to increase.

http://flutetankar.blogspot.se/2011/07/bos...och-framat.html

People also say that interest rates are low, but in reality it is only the Central Bank Of Sweden's base rate that is low at 2%. A 3 -month mortage rate is now around 4 %...the margins taken by the Banks have rarely been higher. So if you buy a flat for say, SEK 4 million, put 80% down and have a monthy charge of SEK 40,000 you have accommodation costs of around SEK 137,600 or around SEK 11,400 a month. That might be OK for couples with jobs, but if rates rise thíngs might start to get a bit hot under the collar. And rising rates will also reduce the market value. I would go for a rent for a few years.

[rtharper]

People also say that interest rates are low, but in reality it is only the Central Bank Of Sweden's base rate that is low at 2%. A 3 -month mortage rate is now around 4 %. ... (show full quote)

People also say that interest rates are low, but in reality it is only the Central Bank Of Sweden's base rate that is low at 2%. A 3 -month mortage rate is now around 4 %...the margins taken by the Banks have rarely been higher. So if you buy a flat for say, SEK 4 million, put 80% down and have a monthy charge of SEK 40,000 you have accommodation costs of around SEK 137,600 or around SEK 11,400 a month. That might be OK for couples with jobs, but if rates rise thíngs might start to get a bit hot under the collar. And rising rates will also reduce the market value. I would go for a rent for a few years. ... (hide full quote)

Agree! I think rates will have to rise sooner or later, and that housing prices will fall as a result, as they are currently overvalued compared to earnings and the current level of borrowing is not sustainable.

[byke]

While housing prices have continued to rise during this time of low interest mortgages, I am not entirely sure we will see a decline in sale prices compared with inflation.

Also, one of the biggest areas I think we will see an increase in prices will be in the Stockholm region. While more people flock to this specific area where accommodation is limited and governments are unable to create new builds to supply the needs of the market it, will cause an ever increasing offset. And that will result in ever higher prices.

But this is nothing new, the London property market is very different from the rest of the UK.
Spurred on n part from professionals moving to the area due to work.

Most noticeably Sweden is seeing a very steady and also a very large increase in immigration which obviously will add to housing prices (supply and demand) through out Sweden.

One thing that no one seems to have spoken about is the creation of new BRF's from older buildings. And the price that original tenants have paid when the building has been converted to a BRF. Usually when a house decides to buy the building and convert it over to a BRF they do so with a very large mortgage to buy the building.

My concern has always been that when these house conversions take place, the tenants who are part of this co-operative do so in almost a form of un-regulation. Allowing tenants to buy their place at a fraction of the market value and offsetting their buy in costs to that of a BRF house mortgage which then goes to penalize future tenants through high avgift in part caused by the creators of the BRF by those chosen to purchase their apartment at a fraction of its market value during its creation.

And with so much regulation in sweden regarding accommodation and property, its seems criminal that this type of "get rich quick" has been allowed to happen for such a long time.

[Puffin]

I think that the place to make money may be Dalarna - on friday the EU approved the IKEA store in Borlänge which will create 600+ new jobs - the days for a 3 bed villa more 500-900k may be over

[Norrlands Turk]

Thank you for your answers.

Saw that on Gavledala yesterday.

It looked like they will be building it in the land between the Kupolen and the rail tracks, which didn't look like a big piece of land to me. I assume they expect that the new store will create 600+ jobs in Borlange area, but Ikea itself will employ way fever people than that.

[rtharper]

My concern has always been that when these house conversions take place, the tenants who are part of this co-operative do so in almost a form of un-regulation. Allowing tenant ... (show full quote)

My concern has always been that when these house conversions take place, the tenants who are part of this co-operative do so in almost a form of un-regulation. Allowing tenants to buy their place at a fraction of the market value and offsetting their buy in costs to that of a BRF house mortgage which then goes to penalize future tenants through high avgift in part caused by the creators of the BRF by those chosen to purchase their apartment at a fraction of its market value during its creation.

And with so much regulation in sweden regarding accommodation and property, its seems criminal that this type of "get rich quick" has been allowed to happen for such a long time. ... (hide full quote)

Hrm, but how is this different from having a lower BRF mortgage, then asking people to take out higher mortgages? Their avgift is certainly lower, but their mortgage payments higher. Either way, they are paying a (roughly pro-rata) share of interest payments on the conversion loan. You say this passes the cost on to later tenants, but since the avgift affects the value of a flat, doesn't this mean the value of the flat is lower with a higher avgift, so later tenants have to pay a larger share of the conversion loan, but will have a lower mortgage, as well? The two approaches seem (roughly) equivalent to me.

[Yorkshireman]

One needs to understand the different market forces in play, and one does not just create a BRF from nothing.

A building used for apartments has a different market value than each apartment in the building.
What a protery management company (ore developer) is prepared to pay for a building is different than what a private individual is prepared to pay for an apartment (or rather share of BRF and right to live in apartment).

For new buildings, the property developer will create a new BRF and that BRF buys the property from the developer. Individual apartments are then sold (each resident gains a share). If not all apartments are sold, then the property developer retains shares in the BRF, and can either rent out the apartments, or sell them whenever they can.

For older properties that have rented apartments, when the owner wants to sell the property, if the residents are informed (or are aware enough to have prepared beforehand), if they can get 67+% of renting tenants to agree, they can form a BRF. That BRF has 1st right to buy the property (not the apartments). The owner states the selling price and conditions. The BRF will do an survey of the property, and negotiate.
If the BRF makes an offer that is rejected, the owner has the right to sell the property to any other party
but only at the same price or higher, and with exactly the same terms and conditions.

If You don't get 67% of the renting tenants in agreement to create the BRF, you cannot do it.

The BRF members then will calculate that to reach the total cost of buying the property, and maybe any fund for needed renovations, the amount they need to divide by cash input from tenants, and loans taken by the BRF. They do a preliminary calculation that then gives an estimated price per sqm for residence to pay, and what share the apartment will cover, plus according to loans expected and maintenance costs what the monthly fee will be.

Each member is free to judge if they want to take part. If then it is rejected by members, it still cannot go ahead unless there is 67%+ in agreement.

Whilst it may seem willy-nilly, the normal aim is to buy the property at roughly market value, which normally gives a premium per apartment of 30%+, whilst balancing that to reduce the monthly cost to lower than what the original monthly rent was.

If the BRF has not done those things, and monthly fee is higher, then it is likely that they are either numpties (so get out of there) or they have calculated >30% rise in apartment price per sqm after purchase, and are looking to sell directly.

The alternative for them, is that the property is sold to a new management company/owner, and most often than not they do renovations and step up the rent quite a bit ... in fact there have been many cases in Stockholm where renting companies have sold to each other buildings to renovate and step up rents, to get around rent control laws. Since new owner can convert the building as part of renovations.

When You buy an existing BRF, those initial bonus' have already been consumed. However, You are buying an asset that hopefully appreciates, monthly fee is often lower than a rent, and have more control over what is done in general, which You don't have with renting.

This will become more important if the proposed law changes come into effect about sub-letting, since market rates will push up all rents especially in Stockholm.

With a house, not only do You have the monthly fees, you also have the extra annual cost of fastighetsavgift/skatte ... which today is limited to approx 6000:-, but sounds like the limit will be raised to 10.000+ in the near future. Factor in that for major repairs You have to pay yourself, insurance for the building, the fact that houses are most often outside of cities (or in suburbs) then travel to/from work and general access to public services, hospitals etc...

It's a personal choice, but I am sure the total cost is not that much different, it just seems like it is since most bostadrätts are in bigger cities, and there property in general is expensive.

[rtharper]

It's a personal choice, but I am sure the total cost is not that much different, it just seems like it is since most bostadrätts are in bigger cities, and there property in general is expensive.

Indeed, nor is this something limited to Sweden, of course. Co-ops are not as popular in the UK, but they abound in New York and Chicago. I believe someone a while back brought up a good point about BRFs: If there isn't one, try getting someone on the ground floor to pay for a leaky roof without kicking and screaming. The fact of the matter is that there are a great deal of communal concerns, and formalising the obligation to pay up seems to be a safer bet. Furthermore, I suspect pooling resources enables a better control of costs/repairs/etc than doing it all individually, since the BRF can negotiate these things on behalf of the entire building at once (internet comes to mind in this regard). I have no proof of this, however.