Residential skyscrapers are rare in Stockholm, a city permeated by five-storey, classic stone buildings built at the turn of the last century.
That’s now changing. The most spectacular addition to the skyline is nearing completion: A 125-metre, brutalist structure that could be mistaken for a tower of Lego blocks.
Innovationen offers panorama windows and balconies overlooking the red, yellow and orange facades of the Vasastan neighbourhood. The apartments cost a hefty 100,000 kronor (US$11,000) a square metre and residents get access to a private cinema and a gym with a sauna and yoga room, raising eyebrows in egalitarian Sweden.
And that’s just half of it. Across the street, Oscar Properties is erecting a twin skyscraper named Helix.
But that’s where the trouble starts. Oscar Properties still has one-third of the apartments left unsold with only a year left until Helix is completed. The housing market has been struggling since a major slump at the end of 2017 and prices for new homes have continued falling.
Oscar Properties issued a profit warning last month, shaving off a quarter of the company’s market value.
The company has dropped some residential projects, turned others into office buildings and also intends to diversify its portfolio with rental projects and more affordable housing in fast growing cities around Sweden.
The business model of selling apartments under construction and booking profits along the way before a project is finished is now grinding to halt. Both the stock exchange and the financial watchdog are now scrutinising developers over their calculations.
But the plunge in prices has killed the speculative end of the market, which has opened up for some buyers.
Andra Farhad, chief executive officer of stock trading platform Borshajen, in 2018 bought a flat on the 12th floor in Innovationen, but only after waiting for a year to see if the project would actually be completed. Farhad bought her apartment from someone who was selling at a loss before it was completed.
“I knew I wanted to live in this building, I love it, but I was a bit cautious,” she said. “The housing market has become tougher and things are looking a bit shaky for Oscar Properties.”
The go-go days when the company was handing out snacks to people lining up for apartment showings are now over. Still, it has no doubt that it will complete Helix, according to spokeswoman Monica Nygren. “But considering what the housing market looks like now, the sale of apartments takes longer,” she said.
Sandra Miller Kinge, CEO of Eklund Stockholm New York, a high-end broker, agrees, but is also cautious.
“We have no major problems selling new production compared to other apartments, but are also very careful to work closely with the builders to ensure that they have a safe and good offer,” she said.
The troubles are also raising warning flags for the broader economy. The booming housing market has been a key component of the fast growth in recent years, but is now emerging as one of its greatest risk. Some economists see construction dropping 30 per cent from 2017 to the end of this year, taking a significant bite out of economic growth.
One way to salvage projects that are foundering could be to offer more rental housing. Fast population growth and record immigration over the past years mean that there are housing shortages in many areas. A recent political deal is also freeing up rent-setting for new housing.
Skanska, the international construction giant, last month cut its outlook for the Swedish housing market and is refocusing more on rental housing and lower-priced apartments.
“I don’t believe in a dramatic downturn, but I don’t believe in a recovery either,” Anders Danielsson, its CEO, said by phone. “Too much has been built in the most expensive price segments, especially in Stockholm and the big cities.”
Michael Grahn, chief economist in Stockholm at Danske Bank, predicts home prices have further to fall, which will kill more projects and may possible mean the end of some of the smaller developers.
“Producers have been building too expensive homes during a number of years when people were willing to pay no matter what,” he said. “That time is over, they will struggle to sell those expensive homes.”