Ilija Batljan is the founder of a company with a name that is difficult to pronounce: Samhallsbyggnadsbolaget I Norden AB, which translated from Swedish to Spanish means “Social Construction Company”, a real estate fund, better known by the acronym SBB. Batljan was born in Montenegro and emigrated to Sweden in the 1990s during the Balkan War. There, in the Scandinavian country, he completed his economics studies and received his doctorate in demography and planning for geriatric care. He then started a successful political career under the guise of the Social Democratic Party. After serving as mayor of a small town in Stockholm province, he left everything in 2011 to join a real estate company, from which he was later fired, but he saw his future in this sector. It was in 2016 when he spoofed SBB with a big bet: he took over properties for health centers, nursing homes, public schools and even police stations and then rented them out to local governments. And it was worth it.
In less than a decade, brick by brick, he built a company with a portfolio worth $13 billion (about 12.2 billion euros, at current exchange rates). Most of these are social housing and municipal properties across the Nordic region, which the company has secured thanks to a wave of cheap loans. At the end of 2021, SBB had around 60 million square meters of real estate, which is equivalent to 20 Empire State Buildings. Today, however, the SBB has become the symbol of an industry that is suffering from a sharp increase in mortgage prices (due to the rise in interest rates, which has also affected the currency), uncontrolled inflation (which peaked at 12.3% last December) suffered. the highest in more than 30 years) and high levels of family debt. After reaching an all-time high in the second quarter of 2022, property prices began to decline. “They’re down about 12%, which means they’re down more than 20% in real terms since then,” said Andrew Kenningham, chief economist at Capital Economics.
“There has been a significant correction,” emphasizes Daniel Kral, senior economist at Oxford Economics. But it’s not the bursting of a bubble. “Although we could see a further decline in the coming months, prices will return to the same levels as 2020,” says Jens Magnusson, chief economist at SEB (Skandinaviska Enskilda Banken AB, a financial group in Northern Europe). However, due to the family’s high level of debt, the situation is still worrying. Because in Sweden (with 10.8 million inhabitants) it has almost always been much easier to own a house than to rent one. According to the country’s financial regulator, mortgage debt accounts for 83% of total household debt. Swedes have twice as much debt as Germans or Italians. According to the Organization for Economic Co-operation and Development (OECD), real estate accounts for 18% of bank loans, three times more than in Spain.
Property prices and debt rose after the last financial crisis due to falling interest rates. The price of money remained negative for almost five years – from February 2015 to the end of 2019, today it is 4% – fueling the desire for property in a booming economy. The average annual growth of Sweden’s GDP was 1.7% between 2008 and 2021 (twice that of the entire EU). The Nordic model was admired and its politicians stuck out their chests whenever they could. However, something was brewing deep inside. “There was a structural imbalance,” says Kral. On the demand side, population growth and extremely low interest rates could not be adequately offset by the availability of real estate. Then prices began to rise, also helped by the high returns from buying and selling transactions. “The Swedish market has gone through a classic boom and bust cycle over the last 15 years. “Prices doubled between 2007 and 2022, representing the largest increase among most advanced economies,” says Kenningham.
The picture becomes even murkier when one considers the financial obligations between families. On average, household debt is around 195% of disposable income (after taxes). This indicator is a cause for concern, especially if interest rates on these debts rise. And this in a context where the majority of mortgages (between 60% and 70%) are with a variable interest rate. “The combination of high household debt and variable loans has made Swedish households and the economy more sensitive to monetary policy decisions,” emphasizes the SEB chief economist. “It’s not that I’m particularly worried about families not being able to repay their loans, but they could significantly reduce other expenses, which in turn will contribute to the economic slowdown,” he adds. According to forecasts, Sweden will be the only economy in Europe to fall into recession at the end of this year.
Domino effect
The weakness of the real estate market is already putting pressure on the construction industry and, together with greater uncertainty and cost developments, is leading to a decline in investments. “In a good year, we record around 75,000 housing starts. This year we are aiming to reach 25,000,” says Magnusson.
Sweden – which has had a regulated rental system since the late 1940s, but where you have to wait an average of around 9.2 years to access a property under this system – knows what a housing crisis is. In the early 1990s, the market collapsed after strict restrictions on taking out a mortgage were abolished, triggering a deep crisis that led to the nationalization of two banks, the rescue of a third (with losses equal to 12% of GDP) and The crown led to a devaluation of banks. It took almost four years for the country to recover from the blow. At that time, Ilija Batljan, the founder of SBB, had just landed in Scandinavian countries and three decades later still didn’t know what his fate had in store for him. He probably never could have imagined who he is today or the weight of the million-dollar business he forged, whose current credit rating was downgraded to the “junk bond” category and which he had to give up the chairman of the director. Delegate. Of course, what belongs to César belongs to César: Batljan still retains 8.3% of the company’s shares and almost 32% of his votes on the board.
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