Swedish property giants hit by billions in write-downs amid real estate turmoil

Two of Sweeden's largest property companies, Heimstaden and SBB, announced multibillion-crown write-downs in their 2023 financial results. The news sent shockwaves through the market, triggering sharp declines in share prices, despite both firms expressing cautious optimism about the future trajectory of Europe's property market.

Heimstaden, a prominent property investor with holdings spanning from Stockholm to Berlin, reported a staggering write-down of 31 billion crowns on the value of its investment properties. This resulted in a pre-tax loss of 29 billion crowns for the company. Similarly, SBB, Sweden's largest commercial landlord, disclosed a write-down exceeding 13 billion Swedish crowns, slashing its property portfolio to 73 billion crowns from 135 billion.

Downturn in fortunes for these property giants comes against the backdrop of sharp increases in interest rates and rising costs, which have adversely impacted Europe's real estate market following years of exponential growth and high debt levels among property firms.

While the market reacted unfavourably to the news, executives from both Heimstaden and SBB voiced tempered optimism, suggesting that the worst may be over for Europe's property market. SBB CEO Leiv Synnes expressed confidence in the improving conditions in financial markets, indicating a potential turnaround in real estate transactions at sustainable long-term levels.

Christian Fladeland, deputy CEO of Heimstaden, echoed these sentiments, stating moderate optimism for 2024 while cautioning that certain segments, particularly offices, may experience a slower recovery.

However, despite the glimmers of hope, concerns persist about the health of Sweden's commercial real estate sector, with warnings from experts and policymakers about the risks posed by high levels of debt. Erik Thedeen, Sweden's central bank chief, highlighted commercial property as a potential threat to banks, underscoring the need for vigilance in managing risks within the sector.

The downgrades in credit ratings by Fitch for Heimstaden AB and Heimstaden Bostad further compound the challenges facing these property giants, with disruptions in cash flows and dividend payments exacerbating financial pressures.

(With Reuters inputs)