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Market value guarantee for new housing

Lundin, Mattias LU and Liljebris, Oskar LU (2018) VFTM01 20181
Real Estate Science
Abstract
The price development of housing in Sweden has long been a success story for sellers. With low interest rates, high demand and limited supply the prices have risen. Since the fall of 2017, the market uncertainty has grown. Prices are falling, demand decreases, and housing developers get harder to sell their newly produced homes, which in the long run can lead to reduced housing production. The potential reduction in production is a problem in Sweden because of the current housing shortage. Buying a newly created home by a developer differs largely from buying an already existing home by an individual on the succession market. The price is fixed (without bidding) and the agreement is often written long before access to the residence is... (More)
The price development of housing in Sweden has long been a success story for sellers. With low interest rates, high demand and limited supply the prices have risen. Since the fall of 2017, the market uncertainty has grown. Prices are falling, demand decreases, and housing developers get harder to sell their newly produced homes, which in the long run can lead to reduced housing production. The potential reduction in production is a problem in Sweden because of the current housing shortage. Buying a newly created home by a developer differs largely from buying an already existing home by an individual on the succession market. The price is fixed (without bidding) and the agreement is often written long before access to the residence is granted. This report examines whether a new product in the housing market, the market guarantee, can lead to maintaining the production during times of uncertainty. Market guarantee is a product issued by housing developers to reduce uncertainty about the fluctuation of the housing prices during production. The product serves as a guarantee, which gives the buyer compensation for the value of the dwelling during the period between precontract and access. Buyers concerned about price falls are often afraid to commit to a newly produced home that they won’t get access to for a long time. The method of the thesis consists of a literature study and a qualitative study with the purpose of examining market guarantee's impact, risks and success factors. The qualitative data has been collected through an interview study with housing development companies operating in Stockholm and two of Sweden's largest banks. As with other assets, the price for homes varies. The housing market is characterized by periods of rising / falling prices which create cycles. During the period when prices rise uncontrollably, prices are characterized by overvaluation, the market strongly believes in continued price increase. When the market then turns into macroeconomic disorders, market expectations change completely and underestimate prices instead. The report shows that the need for the market guarantee exists when there is uncertainty in the housing market, which may vary depending on geographical location and customer segments. If the population is worried about price falls, they often wait to buy newly produced homes, to the greatest extent when there is a long time for access. This is largely due to psychology, the medias negative headlines have increased the fear of falling prices. In those cases, the market guarantee is a product that is needed, and is today the only solution that addresses the concerns about price falls. What speaks for that the market guarantee will have a positive effect on sales is that the guarantee addresses the psychological concerns of consumers by shifting the risk to the housing company, and the risk is also greatest at an early stage of the construction process. The report shows that in some cases the sales will be kept up, and thus also the production to a certain extent. (Less)
Abstract (Swedish)
Prisutvecklingen på bostäder i Sverige har under lång tid varit en framgångssaga för säljare. Med låga räntor, stor efterfrågan och begränsat utbud har priserna stigit. Sedan hösten 2017 har en oro utvecklats på bostadsmarknaden. Priserna sjunker, efterfrågan minskar och byggföretag får svårare att sälja sina nyproducerade bostäder, vilket i förlängningen kan leda till minskad bostadsproduktion. Den potentiella minskningen av bostadsproduktion är ett problem då det råder bostadsbrist i Sverige. Att köpa en nyproducerad bostad av en byggherre skiljer sig till stora delar från att köpa en redan befintlig bostad av en privatperson på successionsmarknaden. Priset är fast (utan budgivning) och avtalet skrivs ofta lång tid innan tillträde till... (More)
Prisutvecklingen på bostäder i Sverige har under lång tid varit en framgångssaga för säljare. Med låga räntor, stor efterfrågan och begränsat utbud har priserna stigit. Sedan hösten 2017 har en oro utvecklats på bostadsmarknaden. Priserna sjunker, efterfrågan minskar och byggföretag får svårare att sälja sina nyproducerade bostäder, vilket i förlängningen kan leda till minskad bostadsproduktion. Den potentiella minskningen av bostadsproduktion är ett problem då det råder bostadsbrist i Sverige. Att köpa en nyproducerad bostad av en byggherre skiljer sig till stora delar från att köpa en redan befintlig bostad av en privatperson på successionsmarknaden. Priset är fast (utan budgivning) och avtalet skrivs ofta lång tid innan tillträde till bostaden beviljas. Denna rapport undersöker om en ny produkt på bostadsmarknaden, marknadsgarantin, kan leda till att produktionen hålls uppe under tider med osäkerhet. Marknadsgarantin är en produkt som ges ut av bostadsutvecklare för att minska konsumentens risk kring bostadens prisutveckling under produktionstiden. Produkten fungerar som en garanti, som ger köparen ersättning om bostadens värde sjunker under tiden mellan förhandsavtal och tillträde. Köpare som är oroade för prisfall är ofta rädda för att teckna sig för en nyproducerad bostad med tillträde långt fram i tiden.

Metoden för examensarbetet utgörs av en litteraturstudie samt en kvalitativ studie med syfte att undersöka marknadsgarantins effekter, risker och framgångsfaktorer. Den kvalitativa data har samlats in genom en intervjustudie med bostadsutvecklingsbolag verksamma i Stockholm samt två av Sveriges största banker. Precis som för andra tillgångar varierar priset i bostäder, bostadsmarknaden kännetecknas av perioder av stigande/fallande priser vilket skapar cykler. Under den period där priser stiger okontrollerbart är priserna karakteriserade av övervärdering. Marknaden har stark tro på fortsatt ökning av priset. När marknadens sedan vänder på grund av makroekonomiska rubbningar ändrar sig marknadens förväntningar helt och undervärderar priserna istället. Resultatet från denna rapport visar att behovet för marknadsgarantin finns när det råder osäkerhet om prisutvecklingen på bostadsmarknaden, det kan variera beroende på geografiskt läge och kundsegment. Om befolkningen är oroade för prisfall avvaktar de ofta med att köpa nyproducerade bostäder, i störst grad när det är lång tid till tillträde. Det beror till stor del av psykologi, vilket media har bidragit till då de drivit upp en rädsla för prisfall. I de fallen är marknadsgarantin en produkt som behövs, den är idag den enda lösningen som hanterar oron för prisfall. Det som talar för att marknadsgarantin kommer ha en positiv effekt på försäljningar är att garantin hanterar den psykologiska oron som finns hos konsumenter genom att risken flyttas till bostadsbolaget, risken är dessutom som störst i ett tidigt skede av byggprocessen. Rapporten visar att försäljningen kommer hållas uppe i de fallen, och därmed i förlängningen även produktionen till viss del. (Less)
Please use this url to cite or link to this publication:
author
Lundin, Mattias LU and Liljebris, Oskar LU
supervisor
organization
alternative title
Marknadsgaranti för nyproduktion - Ett sätt att öka bostadsproduktionen
course
VFTM01 20181
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Marknadsgaranti, nyproduktion, bostadsmarknad, marknadsoro
other publication id
ISRN/LUTVDG/TVLM/18/5414 SE
language
Swedish
id
8946336
date added to LUP
2018-06-12 10:55:32
date last changed
2018-06-12 10:55:32
@misc{8946336,
  abstract     = {The price development of housing in Sweden has long been a success story for sellers. With low interest rates, high demand and limited supply the prices have risen. Since the fall of 2017, the market uncertainty has grown. Prices are falling, demand decreases, and housing developers get harder to sell their newly produced homes, which in the long run can lead to reduced housing production. The potential reduction in production is a problem in Sweden because of the current housing shortage. Buying a newly created home by a developer differs largely from buying an already existing home by an individual on the succession market. The price is fixed (without bidding) and the agreement is often written long before access to the residence is granted. This report examines whether a new product in the housing market, the market guarantee, can lead to maintaining the production during times of uncertainty. Market guarantee is a product issued by housing developers to reduce uncertainty about the fluctuation of the housing prices during production. The product serves as a guarantee, which gives the buyer compensation for the value of the dwelling during the period between precontract and access. Buyers concerned about price falls are often afraid to commit to a newly produced home that they won’t get access to for a long time. The method of the thesis consists of a literature study and a qualitative study with the purpose of examining market guarantee's impact, risks and success factors. The qualitative data has been collected through an interview study with housing development companies operating in Stockholm and two of Sweden's largest banks. As with other assets, the price for homes varies. The housing market is characterized by periods of rising / falling prices which create cycles. During the period when prices rise uncontrollably, prices are characterized by overvaluation, the market strongly believes in continued price increase. When the market then turns into macroeconomic disorders, market expectations change completely and underestimate prices instead. The report shows that the need for the market guarantee exists when there is uncertainty in the housing market, which may vary depending on geographical location and customer segments. If the population is worried about price falls, they often wait to buy newly produced homes, to the greatest extent when there is a long time for access. This is largely due to psychology, the medias negative headlines have increased the fear of falling prices. In those cases, the market guarantee is a product that is needed, and is today the only solution that addresses the concerns about price falls. What speaks for that the market guarantee will have a positive effect on sales is that the guarantee addresses the psychological concerns of consumers by shifting the risk to the housing company, and the risk is also greatest at an early stage of the construction process. The report shows that in some cases the sales will be kept up, and thus also the production to a certain extent.},
  author       = {Lundin, Mattias and Liljebris, Oskar},
  keyword      = {Marknadsgaranti,nyproduktion,bostadsmarknad,marknadsoro},
  language     = {swe},
  note         = {Student Paper},
  title        = {Market value guarantee for new housing},
  year         = {2018},
}