Swedish property giants write down billions as prices crash

Two of Sweden’s largest property companies on Tuesday (Feb 27) announced multibillion-crown writedowns in their 2023 results, dealing fresh blows to their beaten-down shares, even though both voiced hopes the worst is over for Europe’s property rout.

Heimstaden’s preferential shares dropped more than 30 per cent after Fitch cut its credit rating deeper into so-called “junk” territory and the company said it would defer hybrid bond interest payments. SBB shares fell more than 4 per cent.

For years, property in Europe and particularly Germany and Sweden boomed as interest rates fell, turbocharging demand. A sharp rise in rates has now pricked this bubble.

SBB, Sweden’s largest commercial landlord, wrote down the value of its property by more than 13 billion Swedish crowns (S$1.69 billion), slashing its portfolio – including through sales – to 73 billion crowns from 135 billion.

It posted a 2023 loss of more than 22 billion crowns.

Heimstaden, a property investor with swathes of homes from Stockholm to Berlin, wrote down the value of its investment properties by 31 billion crowns, plunging it to a pre-tax loss of 29 billion crowns.

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Both companies expressed cautious optimism, however, that the market should not fall much further.

“We are now at the beginning of a period where conditions in the financial markets are improving, and that more real estate transactions occur at reasonable long-term levels,” said SBB CEO Leiv Synnes.

“The company has the largest negative asset value developments behind it.”

Christian Fladeland, deputy CEO of Heimstaden, echoed this sentiment. “I am moderately optimistic about 2024,” he told Reuters.

“We are down 15-20 per cent from peak in Germany and Sweden. I find it very difficult to see significant potential for further falls,” he said, adding, however: “Sweden is more at risk of falling a bit further.”

Sweden is one of Europe’s wealthiest states and the biggest Nordic economy, but it has an Achilles’ heel – a property market where banks have lent more than 4 trillion crowns to homeowners.

Weighed down by these home loans, Swedes are twice as heavily indebted as Germans or Italians.

Sweden’s central bank chief Erik Thedeen underscored a sense of alarm, pointing to commercial property rather than ordinary home loans as the main threat to banks.

“Sweden’s problem child is the commercial real estate sector,” he told a meeting of business people. “They have borrowed nearly twice the amount against every krona in profit than they had ... 10 years ago.”

“We know from history that commercial real estate companies can go bust,” he said. Sweden’s property market crashed in the 1990s, plunging the Nordic state into a financial crisis.

While SBB rents out its properties to municipalities and to individuals in rent-controlled buildings primarily in Sweden, Heimstaden Bostad owns property across Europe and is one of the continent’s biggest landlords for private individuals.

The two groups became symbols last year of real estate troubles in Sweden and beyond due to their vast debts and complex corporate structures.

On Tuesday, Fitch downgraded Heimstaden AB’s credit rating to ‘B’ from ‘BB’, saying chief subsidiary Heimstaden Bostad’s proposal not to pay a dividend for 2023 would disrupt cash flows to the parent.

Heimstaden also said it did not intend to pay a dividend and would defer hybrid bond interest payments.

The Heimstaden group is one of several highly indebted Swedish real estate companies buckling under soaring borrowing costs, with one of its main owners, pension fund Alecta, saying in September that the landlord was in need of more cash.

Fladeland said that while he expected a broad improvement, some parts of the market, such as offices, could lag.

“The recovery will not be uniform,” he said. “You see European offices trading at 20 or 30 or 40 per cent below acquisition prices observed five years ago peak.”

“My base case is that valuations for residential in Germany and Sweden will stabilise in 2024.” REUTERS