Swedish Property Federation against rate hikes

The Swedish Property Federation has urged the country’s central bank not to pursue a policy of tighter credit in its latest research into the state of the property market.

After a year of record economic growth, the Swedish economy is set to cool off, the Federation said, pointing to factors including the slow pace of recovery in the US and Europe.

Sweden’s pace of growth has persuaded some that the Riksbank (central bank) should raise interest rates further than previously discussed, in order to stop rising energy and food prices from pressing up wages and prices of other goods and services, the report notes.

“There is nothing that points to this happening,” argued Tomas Ernhagen, chief economist at the Federation.

“Most companies themselves say in various surveys that they have spare capacity and are counting on both wages and prices of their own products increasing by a reasonable 2-3% during 2011.”

Neither does the Federation see the high prices of residential property and growing levels of mortgage loans as reasons for faster interest rate rises.

“We don’t have a residential property bubble in Sweden. The prices are a result of rising incomes and the low interest rates we have had since economic policy was adjusted in the mid-1990s. However, we do have a residential problem in that there is far too little being built in the bigger cities, where people want to live and work,” Ernhagen said.

He also pointed out that household property debt on average is about 40% of the value of the property loaned against. Those households with higher levels of debt could be hit by even small falls in property values.

“But this does not affect either financial stability or the economic development that the Riksbank wants to manage. Consumer protection in this case is [the responsibility of] the Swedish Financial Supervisory Authority, and that was why the ceiling on [property] loans was introduced in the autumn,” Ernhagen said.

The Federation, affiliated with the European Property Federation, represents some 20,000 property owners, organised into one of six regional associations. Members own or manage premises, including rental buildings and industrial properties. It also includes tenant-owner associations.

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