Finland: Asset Bubble Tests Sends Nordea Chairman on House Hunt

Bjoern Wahlroos, chairman of Nordea Bank AB, speaks during an interview at the company's headquarters in Stockholm on March 13, 2013.

The chairman of Scandinavia’s biggest bank is putting his money where his mouth is. Bjoern Wahlroos of Nordea Bank AB (NDA) says there’s no housing bubble in Sweden. So he bought a Stockholm apartment to prove it.

“I made a case study — I actually bought an apartment in Stockholm and it was much cheaper than a comparable apartment in Helsinki, so I cannot understand how this could be an overheated market,” Wahlroos, who also has a home in Helsinki, Finland’s capital, said in an interview.

Swedish apartment prices jumped 8 percent last year and have soared 38 percent since late 2007 to a record, according to Svensk Maeklarstatistik, which compiles monthly data on Swedish home prices. A 200 square-meter (2,150 square-foot) apartment in downtown Stockholm now costs $1.9 million, on average. That’s prompted some analysts such as Bengt Hansson at the National Housing Board to warn the market is in the grip of a bubble, saying property prices are now 20 percent overvalued.

As central banks in the euro zone, the U.S. and Japan respond to the global economic crisis by keeping interest rates at record lows, some of the world’s richest countries are struggling to contain overheating fanned by easy money.

Sweden’s central bank signaled last month it’s unlikely to ease policy further amid concerns it could boost credit growth, after cutting rates four times since December 2011. Instead, it plans to raise its benchmark repo rate, currently at 1 percent, in about a year, the bank said Feb. 13. An interest rate increase combined with higher unemployment may tip the housing market in the other direction, Jens Hallen, director for financial institutions at Fitch Ratings, said last month.

Falling Prices

Swedish home prices could fall by as much as 10 percent in the next 18 to 24 months, Hallen said. The government says it’s targeting gradual price gains in the housing market.

“The best thing for us all is if we get a slow increase of house prices in the long term,” the country’s Financial Markets Minister Peter Norman said in an interview this month. “Neither the housing market nor the economy as a whole feels good with constant, and very big, jumps in house prices.”

The average price for an apartment in central Stockholm stood at 61,878 kronor ($9,531) per square meter at the end of February, up more than 25 percent in the past four years, according to Maeklarstatistik, which tracks 70 percent of all Swedish property sales brokered through real estate firms.

Helsinki Averages

In Helsinki, where Wahlroos also has a home, the average price of three-room apartments in its most central neighborhood was 5,340 euros ($6,865) per square meter last year, 28 percent lower than in Stockholm, according to government data and Bloomberg calculations.

In central Oslo, prices are closer to those in the Swedish capital, at 52,600 Norwegian kroner ($9,028) per square meter, according to data from the Association of Real Estate Agents.

In London, the price of a “mainstream apartment” is $12,254 per square meter, while in Paris, it’s $7,281, according to Knight Frank data.

Sweden’s housing market “doesn’t seem overheated — period,” said Wahlroos, who earns 252,000 euros a year as board chairman of Nordea and is also chairman of Sampo Oyj (SAMAS), the Finnish owner of the Nordic region’s largest property and casualty insurance company If, and of Finnish papermaker UPM- Kymmene Oyj. He’s not only betting part of his personal wealth on that premise, he’s also telling Nordea’s more than 10 million customers that the Swedish market is safe.

The Stockholm-based bank’s mortgage portfolio amounted to 126.8 billion euros at the end of last year, of which Sweden accounted for 37.2 billion euros, making it Nordea’s biggest mortgage market in terms of volume.

No Signs

Nordea Chief Risk Officer Ari Kaperi agrees with Wahlroos. He told analysts and investors at a March 6 capital markets event in London that he sees “more or less no” major signs of concern in the Swedish, Norwegian or Finnish housing markets.

Some of Nordea’s competitors in Sweden are concerned about the level of household debt and its effect on home prices.

Swedbank AB, Sweden’s biggest mortgage lender, has deliberately been losing market share in an effort to protect itself from impairments, Chief Executive Officer Michael Wolf said on Dec. 4. The Swedish housing market probably faces “some sort of adjustment,” Wolf said, adding that he is “not concerned about a house bubble — I am more concerned about the debt level.”

Swedish households owe, on average, the equivalent of a record 173 percent of their disposable incomes to their banks, the Riksbank estimates. Governor Stefan Ingves has repeatedly warned that keeping interest rates too low for too long risks exacerbating risks in AAA-rated Sweden’s mortgage market.

Bloated Households

“Households’ balance sheets are bloated and a problem could arise if we end up with a significant fall of house prices,” Norman said. “I would really like to see household indebtedness falling a bit as a percentage of incomes.”

Danske Bank A/S (DANSKE), which has endured housing busts in both Denmark and in Ireland, said in a March 21 report that residential properties in Sweden are above their fundamental value by more than 20 percent and forecast a 5 percent annual drop in prices this year and a 2.5 percent decrease in 2014.

Borrowing has continued to grow even after the government introduced a cap in 2010 that limits loans to 85 percent of a property’s value, and still exceeds the 3 percent to 4 percent pace of growth that Finance Minister Anders Borg has said is healthy. The Financial Supervisory Authority said last month it’s ready to do more to stem credit growth.

Capital Requirements

Sweden’s biggest banks, including Nordea, already face some of the world’s strictest capital requirements, forcing them to set aside at least 10 percent core Tier 1 capital of their risk- weighted assets this year and 12 percent by 2015. The regulator last year also proposed tripling the risk-weights on mortgage assets to 15 percent, reflecting a higher probability of losses.

The loan-loss ratio at Sweden’s largest banks rose to 0.16 percent of all outstanding loans last year from 0.07 percent in 2011, according to a March 25 report from the Swedish FSA. Loan impairments (SWEDA) at the Swedish retail unit of Swedbank AB, the country’s biggest mortgage lender, jumped 48 percent in the fourth quarter from the third. At Nordea’s Swedish retail unit, net loan losses increased to 11 million euros last quarter, from 6 million euros in the three months through September.

While Wahlroos declined to say how much he paid for his new apartment in Stockholm or where it’s located, a majority of Swedes would say he’d made a good investment, according to a survey by SEB AB, Sweden’s fourth-largest bank.

SEB’s house-price indicator, which measures the gap between the number of households predicting rising prices and those who see a decline, jumped to 35 in March, the highest level since May 2011. Fifty-one percent of the respondents in the survey said they expect house prices to advance in the coming year, compared with 44 percent in February. Only 16 percent see prices falling, down from 20 percent last month.

To contact the reporter on this story: Niklas Magnusson in Stockholm at

To contact the editors responsible for this story: Tasneem Brogger at; Rob Urban at

Anthony-Claret Onwutalobi
Anthony-Claret is a software Engineer, entrepreneur and the founder of Codewit INC and CEO of Portia Web Solutions. Mr. Claret publishes and manages the content on Codewit Word News website and associated websites. He's a writer, IT Expert, great administrator, technology enthusiast, social media lover and all around digital guy.

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