Sweden risks more turbulence on property market woes, watchdog warns

SWEDEN’S financial stability faces increasing near-term threats from a heavily indebted commercial property sector, the country’s financial watchdog warned.

Commercial real estate owners in Sweden should reduce debt and strengthen their balance sheets to avoid more turbulence after cracks in the system have become apparent in recent weeks, the Financial Supervisory Authority said in its stability report on Monday (May 29).

Against a backdrop of sharply rising market rates, Sweden’s property firms must refinance more than US$40 billion of maturing bond debt over the next five years, sparking concern over the financial viability of many highly leveraged landlords. One of the country’s biggest, Samhallsbyggnadsbolaget i Norden, has started a strategic review that could result in a sale of the company.

“There is a heightened risk that there will be turbulence on financial markets,” the watchdog’s director-general, Daniel Barr, said. “Our assessment is that the Swedish financial system is resilient, with well-capitalized banks, but we need to follow developments and be ready to act.”

The agency has longed warned about increasing risks in the commercial property sector. While those risks are large, “individual companies’ problems should not be equated with acute problems in the entire Swedish property sector,” it said in the report. BLOOMBERG