In an ominous sign for Sweden’s battered real estate sector, Stockholm-based landlord Oscar Properties Holding had assets seized by a creditor, showing how patience is running thin as a financial crunch intensifies. 

Swedish property firms need to refinance or repay about US$12 billion of bonds and hybrid debt in 2024, providing a fresh test for the epicentre of Europe’s real estate crisis. While there have been signs of stabilisation, major players like Heimstaden Bostad are under renewed rating pressure and forced sales risk sparking fresh turmoil.

To cover 1.6 billion Swedish kronor (S$209.4 million) in unpaid loans from Oscar Properties, DNB Bank, Norway’s biggest lender, took control of a portfolio worth 3 billion Swedish kronor and is seeking to sell.

Like numerous other landlords in the largest Nordic economy, Oscar Properties – which manages warehouses, retail space and housing – stumbled when the cheap-money era ended. Loaded with debt and bond markets all but closed off, financing was hard to come by and tepid demand for real estate made selling assets a stretch. 

“The transaction market froze,” said Carl Janglin, Oscar Properties’ chief executive officer. “We couldn’t sell off properties to reduce debt quickly enough.” 

The stricken landlord has joined a growing list of casualties from Sweden’s property meltdown. The shakeout is still unfolding and 2024 will be a critical year. Troubled landlords Heimstaden Bostad, which was cut to one step above junk on Tuesday, and SBB are among those with the biggest debt maturities.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

“The sector is not out of the woods just yet,” said Marcus Gustavsson, a Danske Bank analyst. “If Sweden’s economy were to weaken more than expected, commercial real estate could struggle as operational challenges may add to the current financial difficulties.”

With bond financing still too expensive for low-rated borrowers like SBB, many landlords are likely to target asset sales next year to plug financing gaps. Riksbank Governor Erik Thedeen earlier this month warned that the situation is “serious” and urged landlords to sell properties and raise equity to cut debt.  

The risk is that more properties go on sale than the market can handle, pushing prices down further. With buyers seeking bigger discounts than sellers are willing to grant, deals for Swedish commercial properties are down nearly 60 per cent to 76 billion kronor through November.

“The problem with the transaction market is the access to funding – it’s expensive and hard to get – and the price picture,” said Mikael Soderlundh, the regional head of research at property adviser Colliers International Group, adding that he expects both parts to gradually improve.

The slowdown is especially true for office and retail space, which are exposed to a potential economic slump. The residential market – where Heimstaden and SBB have large holdings – is more insulated as a housing shortage has helped stave off a worst-case scenario of a 20 per cent price drop.

The uncertainty though is a signal to banks to be careful. Swedish lenders are already the most exposed to real estate in Europe, with the segment accounting for 12 per cent of total loans, according to data compiled by Bloomberg Intelligence. 

In a sign of tight lending conditions, SBB said in November it was unable to access unused credit lines totaling 3.5 billion kronor. The poster child of Sweden’s property crisis also pointed out how uncertainty around both the market and the company was making it “difficult to extend bank loans far in advance.” 

Despite the cash crunch facing landlords, lenders have struck a fairly upbeat tone and reported low levels of bad loans. Svenska Handelsbanken, the biggest property lender in the Nordic region, said credit losses in the third quarter totalled just 1 million kronor, far less than the 342 million kronor analysts had been expecting.

The high share of collateral, low loan-to-value ratios and a conservative credit policy has helped it build “a low-risk loan portfolio,” a Handelsbanken spokesperson said in emailed comments. The Stockholm-based bank is among the most shorted in Europe’s bank sector, along with Nordic peers SEB and DNB. 

Despite the issues with Oscar Properties, DNB chief financial officer Ida Lerner said the bank’s Swedish property exposures – which represent 4 per cent of the bank’s overall lending to the sector – are “performing well overall.” She declined to comment specifically on the soured loan to Oscar Properties.

Signs that interest rates have peaked could help crack open financing, and that led to a rebound in landlord’s downtrodden shares. The SIX Nordic Real Estate Index is up nearly 40 per cent since hitting a three-year low in October, as investors grow more bullish on the sector’s prospects.

While interest rate risks may be fading, property valuations will likely fall further, according to Svenska Handelsbanken analyst Johan Edberg. “While we are not particularly surprised by the market reaction and revaluation of the shares, it is tempting to call it an overreaction,” he said in a note to clients last week.

Some property companies though are seeing the pressure easing as banks and bond markets gradually reopen. Atrium Ljungberg – rated by Moody’s at the second-lowest rating bracket in investment grade – is relying on banks for funding and says that’s not an issue.

“We’re getting calls from the banks, asking if we want to borrow money,” chief executive officer Annica Anas said by phone. “There is a lot of capital out there looking for returns.”

Moody’s though is more cautious and maintained its negative outlook on the company on Tuesday. An improvement in its credit profile requires further cash-generating measures like asset disposals and continued positive rental growth, according to Moody’s analyst Maria Gillholm. BLOOMBERG