The Reinvigoration of Scandinavian Real Estate
Scandinavian real estate is one of the world’s most popular types of properties. Scandinavia is a sub-region in northern Europe that is comprised of three countries; Sweden, Denmark, and Norway. The region has a rich history, culture, and strong linguistic ties. Though similar in many ways, Scandinavian countries share strong relations with neighboring countries such as Spain, Iceland, and Finland in various contexts.
Over the past decade, Scandinavian capitals and regions have experienced a period of rapid growth that has helped propel the region’s construction industry. With consistent population growth in metropolitans such as Stockholm and Oslo, averaging 16%, the growth rate has increased pressure for new structures being put up to cater to the region’s growing population.
Due to refugees’ increased immigration into the metropolitans, these cities have increased pressure to provide new builds. Most of these metropolitan cities face a housing deficit compared to the housing demand.
The Metropolitan area population is expected to continue growing, therefore, encouraging an increased housing market to cater to this growth. Eurostat projection estimates have indicated that Scandinavian metropolitans such as Stockholm and Oslo will register a 50%-55% growth in the next 30 years.
This, however, is not common as you go to eastern and southern Europe, where growth is more likely to shrink. While these projections don’t touch on other aspects affecting the industry, such as reduced affordability due to lack of new builds to bridge the housing scarcity, they indicate the challenges these cities are facing or might face in the future.
Taxes and Regulations
There are several reasons for the combination of rising demand for housing and a low supply of houses in the Scandinavian real estate market for sale or rent. One of the critical reasons noted is restrictive policies existing in these metropolitan areas such as rigid planning processes. For example, property building restrictions in some Scandinavian areas have restrictive noise pollution guidelines and many other environmental factors. Therefore, new builds are heavily limited because of the newly structured policies.
Rental regulations also help keep rent-controlled rates low, which encourages residents to buy apartments for sale that they would self-own. Due to these factors present in such cities with restrictive policies, an asset in properties still has room to grow in providing all Scandinavian residents a right to decent housing.
On the demand side, some conceited efforts are being carried out, and they have made strides in spurring housing demand. This includes the revocation in 2007 of the wealth tax while capping the real estate tax to 600 euros per year, and increasing the capital gains tax.
This has resulted in some elderly citizens getting their properties repossessed by the bank, due to the lack of cash flow to pay the annual tax, despite having the buildings as assets. The capping of the property tax enabled fewer bank repossessions, as owners could now afford the reduced rates, and with the extra cash in hand, they could reinvest back into buying some bargain buildings.
Housing prices also decreased due to more strict mortgage requirements and the unstable economic climate brought about by uncontrollable circumstances such as Brexit and the Covi-19 pandemic. The combination of reduced housing prices and more cash in hand due to fewer taxes allows citizens to get a bargain on the market.
Now, as a resident or investor interested in the Scandinavian market, where would I look?
Though partially disrupted due to the Covid-19 pandemic to reduce spread, one of the critical areas is tourism. Tourism to Scandinavia grew briskly from 2007, cities like Stockholm, Oslo recorded 50% to 55% growth in tourism during the period, and even Iceland recorded a 29% growth.
Airbnb’s development has been propelled by part of tourism growth, which has been proven to have affected the Scandinavian real estate market’s house and rental rates. The use of Airbnb has led to an increase in housing prices of up to 2%. This has caused ripple effects in nearby tourist hot spots such as the Costa del sol, a coastal town that is now a world-renowned tourist destination.
Due to all the underlying factors such as the boom in tourism, reduced taxes, and liabilities that frees up cash for investment, majorly tourist hot spots with excellent properties have become prime markets for international investors. Some areas like the S coastal towns have a planned 200 new build construction projects in the pipeline and 11,000 homes for sale. Exciting projects also are leading in such areas as Malaga, Fuengirola, Benalmadena, and even Torremolinos.
Lucrative for Investors
Who is funding these significant developments and leading them? Mostly promoters, foreign funds, and even local companies see the coastal town building’s market attractive due to the remarkable improvement brought upon by adequate infrastructure, good communications, and overall consolidation.
Banks are now stepping into the fray and promoting the sale of homes. For the first time after an era of bank repossession, the banks are open to financial options as long as land ownership and pre-order sale is evident. However, there is also an increase in another segment, the international investor.
An increasing number of investors are investing in Costa del sol, Malaga, Fuengirola, Benalmadena, and Torremolinos, and the percentage continues to grow. Scandinavians that are Swedes, Finns, and Norwegians have taken the lead and are currently leading in purchasing homes on Malaga and Fuengirola’s.
Second Hand Housing
They are investing in both new and second-hand housing, raising their profiles and participation. This type of real property investment is integral in reinvigorating the property sector. As a result, it provides attractive housing at a bargain level, with fewer taxes and more availability and options.
The new real estate market has propelled Airbnb’s development in Scandinavia, and Costa del Sol. The big question is will the growth of Airbnb be brought back to its earlier peak post-COVID? While it is difficult to ascertain the long-term effects of reduced tourism, investors should place a long-term hedge and be on the lookout for great bargains in both Scandinavia and Costa del soy.
The locations are prime tourist destinations, and once the world gets back in motion, those ready to invest will reap the same benefits.