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22 October, 2018

A complete guide to buying an apartment in Stockholm (Part 1)

Are you still browsing on Blocket for rental apartments in Stockholm? Then I highly recommend you to read this article.

In less than 10 months from arriving in Sweden I bought my first apartment in Stockholm at a great bargain. Here are some tips and secrets on how you can also get out of the frantic rental market.

How competitive is the rental market in Stockholm?

  • You are competing with an additional 10,000+ migrants who relocate to Stockholm each year (SCB gov stats, 2017).
  • On 1 single Blocket rental ad, 100+ people are messaging about renting the same flat within a few days of an ad being published.
  • It can take at least 2 months to find a rental apartment in Stockholm. Dealing with scams while using Blocket ads is highly likely.
  • One can easily spend close to/over 40% of your income on rent. It is not uncommon to have to move every 3-6 months to avoid being homeless. It is almost impossible to find a long-term rental contract for more than a year as a foreigner.

Sounds familiar to your current situation? 60-80% of your time is probably spent on merely looking for a place to sleep. The rest of your time and money goes on adapting to the local culture, new work challenges and social life.

However, instead of facing high-costs & a pressure-cooking life-style, it is in fact financially POSSIBLE to buy an apartment in Stockholm. This guide will be split into four parts, providing some insights into how you can settle in like a pro.

Is renting more expensive than buying an apartment?

A 23sqm apartment I rented in Gärdet (Stockholm) for 12,000 SEK/ month in 2017.

A 23sqm apartment I rented in Gärdet (Stockholm) for 12,000 SEK/ month in 2017.

The ugly truth is that you, as a foreigner, probably have no idea how much you are currently being overcharged by your landlord.

As an example, let’s say that you are looking for a studio/ 1 bedroom (‘1-2 rum’ in Swedish terms) apartment in Stockholm. Let’s do the math on how much you could have saved each month by buying an apartment:

In reality, it only costs your landlord (the person who lends you the flat) a total of 3,000 kr/ month, including all utility bills and ‘avgift’ (a fee paid to the housing association in English), for a 23sqm apartment. According to the market value on Blocket, you will likely have to pay a monthly rent of around 12,000 kr given the high market demand.

This essentially means that you are paying 4x ( 9000 kr/ month) of what you would have saved if you own the apartment.

Calculation explaining below:

12,000 (Your monthly rent)
-3000 (Your landlord’s total cost)
=9000 kr/month (Amount of money you could have saved by owning the property)

Each year, you are looking at an annual expense of 108,000 kr (=9000*12), extra just in rent alone.

In 3 years, you would lose about 324,000 kr (=9000*12*3) in rent.

In 5 years, your piggy bank would already have half a million extra if you had chosen to buy an apartment instead…and 1 million in 10 years!

Imagine you could have used the 100,000 kr saved each year for travelling, buying another apartment or doing anything else.

You can still be a first-home owner like a Swede.

Who can buy an apartment in Sweden?

Anyone!

  • The rules are the same for Swedish, EU and non-EU. The only difference is that you will, as a foreigner (esp. non-EU), have a 1-2 week longer processing time for your mortgage application and a slightly smaller mortgage if you have been under 3 years in Sweden.

  • The buying process is very straight forward. You don’t need to know the Swedish language to buy a house. Google translate is quite useful!

Remember:

  • You must have a full-time job in Sweden and passed your probation for the bank to approve your mortgage

When should I buy an apartment?

Ignore what the media says about a property bubble. All you need is a good location for the apartment and you will be least affected by/shielded from any economic downturn.

You are buying because you need a stable life. That said, research if it’s the right time to buy such as a seasonal offer. Always do your own research before jumping into the market. First, check if the market is likely to bring you a profit or a good bargain if you are to sell in 5 years. Some important indications of a good time to buy now is as shown below.

  • It’s a buyer market:  Property price in Stockholm area fell by 5-10% y-y in Aug 2018, this is a good moment to hunt for bargains. Remember that you are not looking for the deepest plunge, but entering at a good low-mid point from the last price peak is generally good enough. Property prices are most likely to rise in long-term and has been for more than 20 years now (+60%).
Bostadsrätter Prisutveckling in Stockholm

Average Property price per sqm in Stockholm (Svensk maklarstatistik, Oct 2018)

  • Financially viable: Downpayment in Sweden is still historically low at 15%. (e.g. downpayment of a 2.5m flat is 375k). This proportion has increased from 10% to 15% recently, consider that the downpayment is likely to increase followed by a stricter gov policy. Grab a cheaper deal before the next one comes!
  • Easy credit: Sweden has one of the world’s lowest interest rate (1.5%), and longest mortgage repayment period (no rush to pay back) compared to many other modern places such as London and Hong Kong. You can still borrow close to 5x your annual income (reduced to 4.5x from 5x since Jan 2018).
  • Unprecedentedly high demand for a small apartment (<2 rooms) due to migration and immigration: coupled with low construction rate leading to a tight supply. The demand-supply gap is huge (+10,000 migrants vs 3000 newly constructed 1-2 rooms). Prices for small-sized apartments are likely to continue to rise in long-term.
Färdigställda lägenheter i nybyggda hus efter region, hustyp, lägenhetstyp och år

Newly constructed apartments in Stockholm by number of rooms (SCB, Oct 2018)

 

 

Now that you are curious about buying an apartment instead of renting, let’s get down to a step-by-step guide of how you can achieve this in action. Read ‘A complete guide to buying an apartment in Stockholm (Part 2)’ to be published in a couple of weeks. 

 

Disclaimer:

The information presented on this Blog series is shared for entertainment purposes ONLY.  Forecasts, estimates and certain information contained here should not be considered as investment advice or a recommendation to invest. Past performance is not indicative of future results.  The Author in no way guarantees any specific outcome or profit.  Investments can lose money over short or even long periods of time.  You should consult your financial advisor before making an investment decision.

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Teenie Fung
Teenie is a Stockholm-based investment advisor and tech enthusiast. Inspired by the gigantic potential of Stockholm aka 'Unicorn Factory', Teenie left her job from a top-tier bank in Hong Kong and moved to Sweden in 2017.
Prior to that, she worked in different countries across Europe and Asia, challenging herself on cross-border investments and business development. Since the beginning of her new life in Stockholm, she has been actively engaged with high-tech transactions from startups to multi-billion dollar companies in the Nordics.
She's also the creator of an online activewear brand (yogafriday.com) and the founder of a fashion community that is still active today in England. At present, Teenie continues to seek for emerging technologies in pursuit of improving everyday living and a better future.
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