Housing and Transaction Costs

Abstract

Transaction costs on the housing market are, arguably, inevitable. They are also diverse. While fees and taxes are easily identified and observed, transaction costs can arise from the functioning of the market and its regulatory framework. For instance, there are costs related to obtaining information. Lack of information creates uncertainty, which increases risk, which increases transaction costs. Thus, market transparency affects the level of transaction costs. For the regulatory framework to be effective, rules must be effectively enforceable; accordingly, the judicial and administrative institutions must function properly. Thus, there is a clear, albeit complex, relation between transaction costs on the one hand and market transparency, government efficiency, regulatory quality, and property rights protection on the other.

The aim of this chapter is to discuss transaction processes and transaction costs in real estate conveyances for both the seller and the buyer with respect to taxes, fees, and obtaining information. To that end, we compare the transaction processes and costs involved in Croatia and Sweden, respectively.

Neither Croatia nor Sweden displays prohibitive costs, yet Croatian transaction costs are significantly higher than those in Sweden. This is hardly surprising given that the Croatian transaction process features at least one additional party to be remunerated compared to the Swedish process. Thus, it would seem that the Swedish regulatory regime – where the estate is charged with handling the legal aspects of the transaction – render lower transaction costs.

There is also the issue of how and to whom fees are paid. For instance, there are more bank fees in Croatia, whereas in Sweden more of the fees are paid to the state. On the other hand, Croatia is one of the few countries where no capital gains tax is levied on real estate conveyances, whereas Sweden has a capital gains tax of 22 per cent – a tax that may hamper movement from one region to another with differences in property prices. Overall, however, with the exception of the capital gains tax for the seller, it is clear that the Swedish transaction process carries lower and more predicable costs than its Croatian counterpart.

Citation

Palm, P., Jingryd, O. and Kordić, L. (2019), "Housing and Transaction Costs", Håkansson, P.G. and Bohman, H. (Ed.) Investigating Spatial Inequalities, Emerald Publishing Limited, Leeds, pp. 123-138. https://doi.org/10.1108/978-1-78973-941-120191008