Förenning (brf) has high loans

---

Without being able to forsee the future it's impossible to give you a definite answer.

You say the price is good, which indicates that you have compared with other apartments in the area. Good. That's the most important factor.

What's the loan per square metre? (more relevant then the total 110M)

Two things that will have either positive or negative impact on future sales price:
-Do they have a sound economic plan? If it is too optimistic, the brf will be forced to take more loans or raise the monthly fee, which naturally lowers the value.
-Need for renovations. Can you trust the assessment? If it is too optimistic, again, they will raise the monthly fee in the future and lower the value.

Figure out more about these things and you will be able to better assess the future value.

---

I can agree that it is impossible to forsee the future to 100%, but I would say that buying an apartment today in Stockholm is a high risk business. Everyone is talking about that the bubble will burst soon so I would not recommend anyone to buy an apartment today, especially not in Stockholm, if there isn't an absolute must.

Please read here for more information:
http://www.thebubblebubble.com/nordic-housing-bubble/

---

Hi Thanks for your response. Appreciate it.

The loan / KVM is 17500 SEK. They say they do not need to take more loans as they have 30MSEK in cash. Also it is an Oäkta so have some income from commercial sources.

Do you think it is risky? I can share the economic plan if you have some time.

Regarding the bubble I have a different opinion, I see that prices are rising but on the other hand rental market is also on a high, until the time there is no huge difference between these two market it is difficult to see the bubble burst.
I want to buy coz I think it is expensive to rent and most of all impossible to get anything. Thanks to rulebook.

---

I don't feel confident enough giving advise regarding feasability of economic plans. Hopefully you can find someone who is more used to reading them.

About the bubble, I don't know... I have been hearing these doomsday evangelists spew their "prices will go down by 30-70% within the next 12 months, you just watch" since I bought my last condo in 2009. It's always the same and they probably said the same before I started paying attention.
All I know is I need a place to live and I don't want to make a bad deal.
Sounds like you are thinking the same.

All I can advise you is to look into the BRF properly and don't buy anything you can't afford.

---

Ok, just wanted to give you an advice what the international opinion is about the swedish market. Almost every expert (IMF, OECD, EU Commission, Robert Schiller etc) agrees upon that there is a bubble in Sweden right now, and have the opinion that these are "doomsday evangelists" and that the bubble will not burst because it just have been going up the last years is a little bit naive I think. But if you really want a place to stay and can afford a loss I would say go for it.

Anyway, regarding the loan/kvm I must say it seems to be extremly high (what I remember when I bought my apartment it used to be around 5000-10000 kr/kvm, but I never looked at an oäkta förening so maybe there is a difference there). People also tend to be a little bit careful buying apartments in oäkta föreningar, just because of the tax rules.

---

Thanks a lot again!
This is the first time and I want to ensure that I do not end up in a trap just because of low price ( I am saving probably 500K from the market price.

I agree that loan/kvm is very high but an argument from broker is that it is new association which has just taken over so it is normal.
My intention is not to earn money from living but just dont want to loose so trying to be as safe as I can.

---

The thing that worries me a little bit is with the short time horizon you're talking about (a few years?) can end up in a huge loss if the bubble bursts during this time. So what I wonder when you talk about that it is too expensive to rent, if you know that it is possible to claim money back from your landlord if they charge you too much, because you are not allowed to charge more than "brukshyra" here in Sweden.

If you want to read more about this you can check Hyresnämndens web page: www.hyresnamnden.se

Also be careful when it comes to these new associations, I have looked at many of these, and often they have way too optimistic in their budget plans, just so they can sell the apartments easily.

But if you really feel happy about this apartment and feel that you can afford it without being worried, then go for it, becaue to live in a apartment you like is also worth something. Just remember that it is absolutely no guarantee that you will get the money back, especially not in the situation we are in now and also that there is some expenses the day you want to sell it.

Good luck!

---

Well put 2012-07-31 17:51

I agree with everything you wrote.

Furthermore to TS, it does seem that the brf has taken very large loans. 17.500/kvm is significant.
The monthly fee should by all means be considerably higher then other BRFs in the area with smaller loans. Verify this. If the montly fee is not higher, then this BRFs budget plans are probably too optimistic.

---

You mention that it's a "oäkta" förening. This typically means that the förening are renting out more than 20% of the total area of the property, which means the förening will have income that covers the interest rate payments. 17,5k/kvm might still be okay.

What you need to verify is the current incomes from comercial facilities. How much of the interest payments does this income cover? What's the remaining loan/kvm that the people living there needs to pay for? If this figure still is very high (above 10k/kvm) then you should think twice. And the loan/kvm should be calculated with the total living area as denominator (not the total area of the property since more than 20% of the area is rented out)

You also want to check how long the rental contracts are and need to consider if the förening might loose income in the future, since this loss of income need to be covered by the people living there.

---

Example:

Total loan: 110.000.000 SEK
Total loan/living area: 17.500 SEK/sqm

Total living area: 6286 sqm
Total comercial: 1300 sqm (just one example here!)
Total area (living+comercial) of property: 7586 sqm

Interest rate on 110MSEK loan: 3,5%
Total capital cost of 110MSEK: 3.850.000 SEK

Income from comercial (after tax, heating, maintenance cost): 1.925.000 SEK (just one example, not sure if realistic)
Total capital cost left to cover by the owners: 1.925.000 SEK

So you can roughly say that the income after costs for heating, maintenance, tax etc. will cover half of the capital costs if everything stays the same. The remaining part will be payed by the apartment owners, so you could say that the loan/sqm is comparable to an apartment having a loan of 8.750 SEK/sqm which is higher than average, but still pretty common for new a new förening. You do have a risk of loosing income from comercial facilities, but there is also a good chance of increasing the income from comercial facilities in the future, making it possible to have a lover monthly cost.

so do you have these numbers? expected income for the comercial area? risk of loosing a tenant?