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Asia Today ISSN 1861-4604 Monday, October 23, 2017

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IMF call for action on Swedish property bubble is hampered by election

Nobel Prize laureate and economist Paul Krugman has made a call

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STOCKHOLM, Sweden - The IMF has called for an urged and comprehensive set of macroprudential measures to slow soaring mortgage debt and protect the country's wider financial system.

Nobel Prize laureate and economist Paul Krugman has made a similar call, saying Sweden probably has a significant housing bubble that needs to be addressed.

Property prices in Sweden have nearly tripled in just two decades. While in July, home prices rose at a double-digit pace from a year ago for the first time in more than four years.

The country's household debt-to-income ratio is now above 170% - among the highest in Europe and rising. The issue is worrying Riksbank policymakers, who, out of fear of spurring more borrowing, have kept interest rates higher than warranted by inflation.

The central bank's rates are still at historic lows, however, as there are fears that private consumption which drives the country's GDP would suffer if the rates were increased.

Less than a month away from a general election, there are no votes to be had in campaigning for borrowing to be made more difficult for consumers, but there are concerns in government that the country may lose its coveted AAA score from credit rating agencies Fitch and SP if the situation isn't addressed.

Four in 10 mortgage borrowers in Sweden are not paying off their debt, according to data collected by Reuters, and those that are repaying the principal are doing so at a rate that would on average take nearly a century.

Sweden suffered a serious property bubble in 1992 after financial deregulation in the 1980s led to a boom in commercial property that eventually crashed. Two thirds of the value was wiped from commercial properties and two of Sweden's biggest banks had to be nationalized to keep them afloat.

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