Alternative business models for Swedish real estate developers Analysis of alternative business models applied by real estate developers in Sweden to manage macroeconomic challenges

Abstract

The current macroeconomic climate, with rising inflation and interest rate, is posing a significant challenge for real estate development firms in Sweden. The cost of developing properties is increasing and it is becoming increasingly difficult for many potential buyers to meet the high requirements for down payments associated with the traditional model of home ownership. In turn, this study aims to investigate the applicability and attractiveness of alternative business models for Swedish real estate development firms, to manage the current macroeconomic challenges. Two alternative business models, co-ownership and rent-to-own, were compared against the traditional model of home-ownership and evaluated against the potential profitability and risk associated with each model. The capital structure companies’ use for financing projects that are sold using the different models was also analyzed. These comparisons were made based on both interviews with companies applying these models today, and through a case study with a real estate development company operating in Sweden, that has never in the past applied any of these alternative models. In the end, it was found that although the alternative models are less profitable than the traditional model, and increasingly risky as they are volatile to the effects of the interest rate, they do allow the real estate companies to reach a wider customer base. As the models lower the requirements for down payment, they enable a larger group of people to buy real estate. Although the models may be less suitable to use at scale to sell entire properties, the models could offer attractive options for selling residential units that had previously remained unsold.