House sales totalled NOK 44 billion, twice the total for the previous year. Syndication companies and property funds account for almost half of total sales. In Sweden, the share of foreign investors has been relatively high, and rising, for several years. In comparison, foreign ownership in the Norwegian property market is modest, but probably increasing. For example, the German property fund DIFA purchased parts of the Norwegian School of Management’s college premises in Nydalen in Oslo, and the Scottish Kenmore Property Group has purchased commercial property in Norway for more than NOK 1.4 billion. In a comparison of property markets conducted in 2004, Norway was classified as “highly transparent”. 1 Increased liquidity and transparency promote foreign interest in Norwegian property. 1  2  Jones Lang LaSalle, Global Real Estate Transparency Index 2004. BIS Review 41/2006  The economic situation The mainland economy expanded by 3.7 per cent in 2005. Growth in private services, construction and electricity production was strong. So far, a substantial share of output growth has been attributable to a sharp rise in person-hours worked. The fall in sickness absence in 2004 provided an additional supply of labour to enterprises, but sickness absence increased through 2005. Wage developments reflect and influence business cycles. Strong employment growth in the 1990s resulted in a rise in labour costs, which in turn had a dampening impact on growth. Moderate wage growth in recent years is being accompanied by a strong cyclical upturn. The labour market continues to tighten.
This supports the interpretation of the first price peak as a property price bubble. The value of office property increased in 2005, from a historically low level. In relation to historical levels, the rise in the value of commercial property seems to be moderate, compared with the rise in capacity utilisation. One possible reason for this may be that employment growth was for a long period relatively low in this upturn compared with the upturns in the 1980s and 1990s. This has now changed. In addition, signals from market participants indicate that the rise in value for 2005 as a whole will be sharper than the chart estimate, which was calculated as of July 2005. Developments in real house prices also tracked developments in capacity utilisation from 1985 to 1998. In the period since then, however, house prices have increased further at a steady pace, even when business cycles have fluctuated. This sharp rise, combined with similarly strong growth in household debt, may be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the 1980s, after many households burned their fingers immediately after deregulation. In recent years, household income growth has been solid, household confidence regarding the future has been strong and households probably perceive higher income levels as permanent. This may have resulted in a further rise in house prices and debt. In addition, low real interest rates are currently making a contribution. Sales in the commercial property market reached a very high level in 2005.