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German investors seeking bargain rural property in Sweden

The property market in Sweden plunged in 2008 with the second home sector suffering the most. The price of two bedroomed homes, the most popular with holiday home investors, fell 9.3% and transactions tumbled 65.7%.

Many second home buyers came from other Scandanavian countries but buyers from Norway, Sweden, Finland and Denmark, disappeared. Most have tended to buy close to major cities but real estate agents are reporting a rise in interest in more remote areas from Germans looking for rural properties in the woods near prime hunting areas.

Most of Sweden's vacation homes are clustered around the coast or the country's many lakes. Emelia Hedman, an agent with the Stockholm-based real estate company Bostadsagenten, said these kind of properties usually cost less because of their remote location.

The property market began falling in the middle of 2008, according to Nicholas Barnes, a partner in Knight Frank Residential Research. He said that for the 12 month period through to February of this year, one and two bedroom homes had suffered a 9.3% price reduction, and 65.7% fewer of them had sold.

One of the less attractive aspects of investing in Sweden is obtaining finance. Interest rates and borrowing terms are tightly regulated by the Swedish government. Hedman says that for each property there is a specific cap on the amount that buyers are allowed to borrow. To borrow more than the permitted amount on a specific property, buyers pay the government a fee to have the house reassessed. The fee is equal to 2% of the additional amount the buyer needs to borrow.

Banks in Sweden are not allowed to set their own interest rates based on the financial profile of the borrower. The rates are dictated by the country's Central Bank, according to Barnes and banks are allowed to decide only the amount that a specific applicant may borrow.

Currently, the government has set interest rates at 2.3% in an attempt to stimulate the flagging economy, he said. Rates are usually around 3 to 4% and are expected to return to that level when world economic conditions recover.

Sweden's property market operates on a system of open bids. Buyers bid on houses publicly, and potential buyers can see what others have bid by following the bidding process on the Internet. The highest bidder gets the house.

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