Financial watchdog urges Swedish property firms to reduce debt

The financial watchdog announced in its semi-annual stability report that Swedish commercial property companies were advised to decrease their debt and increase equity to manage the challenges posed by high interest rates. The property sector in Sweden, which had taken on more borrowing during periods of lower interest rates, is currently grappling with elevated interest expenses and diminishing property values amid an economic slowdown. Finansinspektionen (FI) emphasised that larger, publicly traded commercial real estate firms should consider reducing their substantial debt, amounting to approximately 1,500 billion Swedish crowns, to guard against potential increases in interest rates and declines in property values. FI stated, In total, a debt reduction of about 100 billion SEK, or on average 15% per firm, is needed. Many firms may need to sell a large portion of their property portfolio or raise capital by other means. Ratings agencies have already downgraded the debt of several real estate firms to junk status. FI's concerns mirror those expressed by the Riksbank, which urged mainstream lenders to limit dividend payments and share buybacks, ensuring they have reserves to address the possibility of more profound issues in the commercial real estate sector. Although Swedish banks are considered among the best capitalised in Europe, nearly half of their business loans are directed towards lending to the property sector.