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How to analyse a Swedish housing association’s finances before you buy an apartment

How to analyse a Swedish housing association's finances before you buy an apartment
There are several numbers to get your head around before you bid on a Swedish apartment. Photo: Ali Lorestani / TT
When you buy an apartment in Sweden, you're usually actually buying into a housing association (bostadsrättsförening), and it's crucial to understand the state of their finances to make sure your investment is secure.

Overview

You can check the website Alla BRF which gives information about each BRF and gives them an overall grade from A++ (meaning the finances are in the best possible state) to C; these grades are often shown on property site Hemnet too. 

Two other helpful signs should also be available on the apartment ad (bostadsannons) too. You should be able to check how many apartments are in the association (antal lägenheter). Although this may not sound like it’s directly related to finances, it is, and there are pros and cons to different sizes. Joining a small BRF (for example, 20 apartments or fewer) means you will be buying a large share of the association, and therefore could be more vulnerable to any increases in debt or interest rates.

You should also check if the association owns the ground on which it is built (äger marken) or if it rents this (tomträtt). In the latter case, find out when this ground rent will next be reviewed – these rents are usually set by the municipality and non-negotiable so any future increase could be passed on to you as an apartment owner.

But for more detail, you need to look at the årsredovisning, the association’s annual financial report. These should be available online if you search for the BRF of the property you’re interested in, and if not, copies should be available at the viewings or you could email the estate agent to ask to have one emailed to you in advance.

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Loan per square metre (belåning per kvadratmeter)

This is one of the most important figures, and it might be written in the report itself, or if not, you can calculate it by dividing the association’s total debts (skulder) by the total living area (total bostadsyta) in the association.

In general, a loan per square metre below 5,000 kronor is considered a positive sign while over 10,000 is concerning, although most newly built apartments will have loans per square metre between 10,000-15,000, because they will have taken on debts to finance the build and not yet had time to pay them back. For a newly built apartment you need to look at a slightly different set of criteria, set out in the association’s financial plans. But this is why debt per square metre of over 10,000 kronor is considered a bad sign: this is standard for a brand new apartment block, so in one that’s a bit older, you would expect a responsible association to have amortised its debts over time. Some old, well-run associations are completely debt-free.

As for why a high figure is a problem, it’s because the association is vulnerable to economic changes. If they have high loans, that means a high proportion of expenses are interest payments on those loans. Sweden currently has low interest rates, but this could change and if it does, associations with high debts will see their costs increase significantly. For example, if you have a 75 square metre apartment and the association had loans of 6,000 kronor per square metre, that would mean your share of that interest would be 375 kronor per month at an interest rate of 1 percent, paid through your avgift. If interest rates rose to 2 percent, your avgift could be expected to increase by another 375 kronor. But if your association’s debt per square metre was 10,000 kronor, that would be a monthly cost of 625 kronor for the same sized apartment. Note that the avgift covers more than just your share of the association’s debts, including running costs, but this illustrates why the debt is so relevant. 

You should also look back at previous annual reports: is the loan per square metre steadily decreasing over time? That’s what you want to see, because it’s a sign that the association is managing its finances well (although repairs and renovations usually mean increased loans, so check if there’s a clear reason for any rises).

Another calculation you can do is to find out the debt ratio by dividing total loans (lån) by turnover (omsättning). A ratio under 5 is generally considered very good, and over 15 very bad, with many associations somewhere between 5 and 10.

Photo: Gunnar Lundmark/Scanpix

Avgift

One of the figures to look at is the monthly avgift, a fee for services and utilities provided by the BRF. Here, there are a few things to bear in mind. To begin with, see how high the fee is compared to apartments of a similar size, and calculate what this would mean for your monthly costs. A lower monthly cost is always attractive (and if it remains low, should help you when you come to sell), but don’t forget that this is only a small proportion of your total housing cost – saving 1,000 kronor each month on these fees will only save you 12,000 kronor over a year, a tiny amount compared to the total cost of an apartment. 

When doing these comparisons, don’t forget to check exactly what’s included with the fee so that you’re comparing like with like. For example, does it cover water (hot and cold), internet, and are there any perks you’d expect to pay extra for like a shared gym? Or are there any downsides, for example if the association saves money on cleaning shared areas by asking residents to do this themselves? When you go to viewings, take a look at common areas, the upkeep of the building itself, and gardens or courtyards, to see how well maintained they are. If it looks like a lot of work is needed, a low avgift could actually be a warning sign that this has been put off.

You can look at the history of the association to try to identify patterns, for example if the avgift has been raised each year, or if the association has been doing so well that it’s been able to lower the fee or even offer residents avgift-free periods. Just bear in mind that a low figure is no guarantee for the future. If the association plans to carry out major works in the next few years, they will need to take on debts and the avgift could be raised to cover it. The same is true if other parts of the association’s finances are affected; if a business renting a unit leaves and is hard to replace, or if the cost of ground rent rises, your fee could go up, but on the other hand you could see the fee reduced if the association finds new ways to add to its income or if it has steady, low debts. That’s why it’s important not to look at any one figure like the avgift in isolation, but get an overall feel for the association’s financial health. A low fee could mean that the association has low costs and a large fund ready for future renovations, or it could mean that they have amortized their loans at a slow rate and will be in difficulty when repairs are needed.

Vulnerability to interest rate increases

You will also want to find out what proportion of the association’s income is taken up by paying off interest. To calculate this, find the income (nettoomsättning or sometimes just intäkterna) and find out what percentage is used on interest (räntekostnader). In new builds, this is often around 40 to 50 percent, again because these associations have recently taken on significant debts and not yet had time to pay them off or earn income. In older associations, you should look for a lower proportion, with anything less than 20 percent a very good sign.

Upcoming renovations

You should also look at how much money the association has set aside for future repairs and ongoing maintenance, and whether anything specific is planned over the coming years – and how much this is likely to cost. As a rule of thumb, housing experts tend to say that 150 kronor per square metre of living space is a safe amount for an association’s maintenance fund, plus more for bigger projects. As well as asking which repairs are planned, take a look at the standard of upkeep, including seeing any communal areas like laundry rooms or guest apartments, and checking the state of the building facade and stairwells.

But don’t forget that some planned repairs could make the apartment and the building more cost-effective, for example fixing windows or ventilation (potentially improving insulation and reducing heating bills) or improvements to make the building more attractive. It’s certainly not a bad sign if the association has planned improvements, especially if these have been well budgeted for and will improve your life in the building, and possibly make the home more attractive when you come to sell it in future.

Photo: Claudio Bresciani/Scanpix

Income sources

A lot of the figures explained above take into account association costs, but you also need to think about how the association brings in money. In some associations, some apartments are hyresrätter (rental contracts) which could be a future source of income if those apartments are ever sold – though that may never materialise. Find out which businesses, if any, rent premises from the association and how long those contracts are agreed for, as well as asking about other sources of income.

If in doubt, ask

Buying an apartment is a big commitment, possibly even more so in a foreign country where things like currency fluctuations and your ties overseas may add additional uncertainty.

The bidding and buying process moves fast in Sweden, but don’t let yourself be rushed. Make sure you are prepared for the viewing by reading the årsredovisning (a copy should be available at the viewing too, but if you read it in advance you can use the viewing to focus on the physical features of the apartment) and preparing any questions.

The estate agent should have answers to the main questions, but you can always ask to speak to a representative of the housing association’s board (styrelse). Then you can ask for more detail about any planned renovations, any planned changes to the avgift, and even how active the board is.

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