Bo Söderberg

Estimating Distance Gradients for Apartment Properties

The effect of distance from the city centre on selling price, tax assessment and gross income is investigated for income property in proximity to the city centre. Hedonic estimation with a multiplicative model specification is used to estimate the relationship between property characteristics on the one hand and price, assessment and income on the other. The sample consists of centrally located apartment buildings in downtown Stockholm sold during a recent three-year period. The application is specific to Stockholm, but the methodology and the insights gained are general. The results include the estimation of price gradients for the dependent variables. The models are used for estimating the implicit capitalisation rates in the property market as a function of the distance to the centre. We also estimated where the market appears to place the city centre as implied by the observations. Although no rent gradient was found, we were able to detect a significant negative price gradient. The former is reasonable considering the rent control ordinances. The latter indicates the existence of a negative land rent gradient.

Robust estimation of hedonic models of price and income for investment property

Real estate market data often contain outliers in the observations. Since outliers have a large influence on least squares estimates, robust regression methods have been recommended for this situation. Compares the performance of least squares and least median of squares, a robust method, in the estimation of price/income relationships for apartment buildings. Multiplicative models with multiplicative errors are estimated by means of natural log transformations. The study confirms the importance of employing robust methods for this application and implies this may well be so for real estate data sets more generally.

Term structures in the office rental market in Stockholm

This paper contains an empirical study of the rental term structure in a property market that included a dramatic boom and bust cycle. The study is applied to office leases in commercial properties located in Stockholm CBD, Sweden. The time period under study is 1977–1991. The number of observations (lease contracts) that we were able to make full use of in the regression analyses is n=861. For seven out of fifteen years studied, a significant term structure was observed. The estimated hedonic rent equation was also used to construct an office rental index.

Estimating Market Prices and Assessed Values for Income Properties

Assessors perform property valuations for the purpose of tax assessment. Buyers and sellers make investment decisions culminating in a market price. The valuation by assessors is supposed to be fair and equitable and to amount to a prescribed proportion of market value. We investigate the property features considered by assessors in arriving at the assessed value, and by buyers and sellers in arriving at the market price. We also explore what factors appear to be considered differently by the assessors and the market thus contributing to overassessment or underassessment of property taxes. The analysis deals with income properties centrally located in Stockholm, Sweden.

Accuracy of Swedish property appraisers' forecasts of net operating income

This study addresses how property appraisers forecast one important component of the commercial property valuation model: net operating income. We compare appraisers’ ex ante forecasts with corresponding ex post figures from company financial reports. The data are from the Swedish Property Index, 1998–2005, and comprise over 7000 observations. The findings indicate that the appraisers’ forecasts are somewhat forward looking and almost as accurate as those obtained using mechanical autoregressive models. However, the forecasts are biased, as appraisers systematically overestimate future net operating income. There was also evidence of decreasing accuracy over the study period.

Property investor behaviour: Qualitative analysis of a very large transaction

Purpose – This explorative case study focuses on property investment decision making from a behavioural perspective at the very microlevel. The study contributes to an understanding of how property investors manage the decision-making process, including organizational aspects, property valuation, and financial management.Design/methodology/approach – Applying a qualitative approach, the authors analyse a very large transaction that occurred in the Swedish property market in 2008. In an open bid transaction, properties of Vasakronan Corporation were sold for SEK41.1 billion (€4.3 billion). Managers in both the purchasing company and the consortium making the second highest bid were interviewed. The authors were encouraged to speak freely, but also used an interview guide with a number of themes as well as specific questions.Findings – The findings reveal the characteristics of two types of property investment decision-making behaviour with respect to how actors organize the work, use external consultants, value the properties, and secure the financing necessary for a final bid.Practical implications – Creditors, analysts, and appraisers may benefit from the insight that property investment decision makers can use different approaches in determining their final bids.Originality/value – The authors use a qualitative empirical approach in analysing an extraordinarily large property transaction from a buyers point of view and presents detailed information about this transaction as well as general insights into actual behaviour rarely examined in the property investment literature.

Internal rents and the ownership of state properties: experiences from Sweden

Purpose – The purpose of this paper is to show that general‐ and special‐purpose properties have to be dealt with differently by the public sector.Design/methodology/approach – Application of standard economic theory concerning pricing of properties and infrastructure. The issues are analyzed based on experiences from Swedish state‐owned properties.Findings – The distinction results in quite different public property management strategies. Special‐purpose properties have no short‐run alternative use and have limited rental and capital values, unlike general‐purpose properties. Thus, to apply a required rate of return based on assumed capital values universally will lead to inefficient use. For special‐purpose properties, short‐run marginal costs (SRMCs) should be charged – no more.Practical implications – General properties owned by the state represent a suitable case for privatization. For special‐purpose properties, only SRMCs should be charged.Originality/value – The paper makes a distinction between t...

A Note on the Hedonic Model Specification for Income Properties

The hedonic technique is well established as a tool for analysing the determinants of property prices on the market for single-family housing. The theoretical foundation is solid, including particularly the work by Rosen (1974), and there is a large body of empirical applications. There are fewer papers applying the technique to the investigation of market prices for income property; Miles, Cole, and Guilkey (1990), Fehribach, Rutherford, and Eakin (1993), Saderion, Smith, and Smith (1994), Colwell, Munneke, and Trefzger (1998).

An Investigation of Property Price Studies

Several delicate issues are connected to the question of how to compose scientific papers. A number of rules and guidelines apply — some interdisciplinary, others common for all sciences. The scientific policies of the academic journals, but also their space constraints, play an important role in forming the rules. Still, in several situations the question regarding what should be explained and interpreted explicitly and what may be left for the been discussed above, that can explain why it is reasonable not to find only “yes” answers to the questionnaire. In light of these objections, we find the overall result to be reasonably good. However, in two respects we found the results surprisingly poor, taking into account the emphasis that has been put on the topics in standard textbooks and earlier reviews.

Homeownership rates of financially constrained households

We study tenure choice in the Swedish housing market with explicit considerations to budget restrictions in combination with parental wealth, parental income, age, ethnic background, recent movers as well as inter-regional geographic location. We use observations of some 1,010,534 households (corresponding to some 2.9 million inhabitants) to analyze the housing market in metropolitan Stockholm, Sweden. The results suggest, as expected, that the budget restriction is negatively related to owning. However, the results from this study also show that the budget restriction is more binding for young adults, recent movers and immigrants. This is somewhat reduced if we control for parental wealth and parental income. A budget restriction is also more binding in the suburbs of Stockholm than in the particularly high price central part of the city. These results indicates that the recently introduced borrowing constraint on the wealth side in Sweden, intended to reduce household debt, should include specific efforts directed at young adults as well as immigrants, in order to secure their ability to establish themselves on the housing market. One way would be the replace the Swedish child allowance that is paid for every child until the age of 16 with a means-tested individual interest rate subsidy for home buyers.