Owner-occupied apartment properties new opportunity in Sweden
A proposed change in the law will soon provide the opportunity to directly own a private apartment in sweden. NAI Svefa consider this a great opportunity for international investors!
In terms of residential apartments, there are currently three different types available on the Swedish market, these being rental (hyresrätt), rental cooperative (kooperativ hyresrätt) and tenant-ownership (bostadsrätt). The rental and rental cooperative forms are fairly straightforward and easy to understand, but it can be somewhat more difficult to get a clear grasp of how tenant-ownership of apartments works in Sweden.
The tenant-ownership form, in brief, means that rather than actually owning the property itself, one holds a share in an economic housing association (bostadsrättsföreningen) in order to have a right to occupy the apartment. The association owns and administers the actual property. This means that it is not currently possible to directly own a private apartment in Sweden.
However, a proposed change in the law will soon provide the opportunity to directly own a private apartment. The necessary legal amendments are scheduled to come into effect on 1st May 2009. This will mean that, for such properties, the owner of the apartment will be granted a title deed and the apartment will be termed an owner-occupied apartment property (ägarlägenhetsfastighet). In the same way as with houses, such apartments can then be assigned, pledged as collateral and rented out. With owner-occupied apartment properties there will be no economic housing association that needs to approve new buyers or grant permission for an apartment to be rented out. Owner-occupied apartment properties will be taxed as residential houses, but will be assessed in the same way as tenements.
What are the requirements for establishing owner-occupied apartment properties?
The lawmakers have stipulated certain requirements for the establishment of owner-occupied apartment properties. To start with, in terms of housing law, it is a matter of a so called three-dimensional property, as the boundaries of the property are defined horizontally and vertically. Such owner-occupied apartment properties should mainly be established in conjunction with the construction of new buildings, but can also be established in the event of re-designation of older buildings that have not been used for residential purposes during the last eight years. A further requirement for establishing an owner-occupied apartment property is that it must be part of a unit containing at least three such apartments grouped together. Owner-occupied apartment properties will be connected to common facilities in the building such as facades, the roof, load-bearing structures and stairwells etc. These shared facilities will be administered by a so called joint property association (samfällighetsförening).
What are the possible consequences and opportunities of this new form of residential property for international investors interested in Sweden?
This new form of residential property can, for example, provide an alternative for property investors to purchasing entire tenement buildings. It will be possible to invest in clusters of owner-occupied apartment properties in different buildings, thereby spreading the financial risks involved. Owner-occupied apartment properties also make it easier than it previously was to attract multiple financiers for new build complexes. In other words, the investor does not need to be the sole source of financing for the construction of a large residential building because there will now be the option to attract multiple financiers to support the construction, as it can contain multiple individual properties (owner-occupied apartment properties) which can in turn be mortgaged.
Do owner-occupied apartment properties constitute a good investment opportunity?
This is a question which is obviously impossible to answer in the current situation. However, we (NAI Svefa) are convinced that they represent a good investment opportunity. This view is based on the fact that, over time, property tends to be a good investment in general. Of course, there are always exceptions, and this type of residence is new and untested in Sweden. However, in other parts of the world, it is a well established and well tested form of residence. It works very well there and it would therefore be quite remarkable if Sweden were to be an exception.
An indication that the market is interested in the opportunities offered by owner-occupied apartment properties is the fact that we at NAI Svefa are currently assisting two entrepreneurs with their work in preparing owner-occupied apartments – 2 months before the legal changes even come into force!
Richard Hellemar
Business Manager, Real Estate Law, NAI Svefa