When an apartment is not an apartment: hidden pitfalls in real estate purchases
A seemingly ordinary apartment may be legally classified as commercial space, affecting mortgages, taxes, and resale. Registration is possible, but banks and tax authorities treat it differently.
Certified real estate agent and head of Ingrad agency Aleksandra Sandström explained on Radio 4 that contrary to popular belief, it is possible to register one's residence in such an apartment. Following a 2019 amendment, registration depends on actual residence, not the status of the premises.
However, buyers needing a housing loan should note that banks consider such properties as commercial real estate. This can result in a higher down payment and interest rate. Specific conditions vary by bank policy.
These types of apartments emerged due to market changes. Previously, there was high demand for commercial spaces and short-term rental apartments, so developers built many such units. After the pandemic, demand shifted, but requirements for a certain share of commercial premises remained. Consequently, developers often sell these spaces as regular apartments, though their legal status remains commercial.
Such properties are usually cheaper than comparable apartments because they have fewer requirements, e.g., for parking spaces or storage. For investors, this can be profitable, but for personal living, there are important nuances. Sandström said: "If you think you're buying 20% cheaper and will easily sell in 3-4 years, note that the liquidity is lower, and there will be fewer buyers. This affects the price even if the apartment is in a good location. People are afraid to buy out of ignorance."
She advises thinking not only about the purchase but also about future sale. Life circumstances can change, and selling commercial space is more difficult. Additionally, owners must consider tax implications. Commercial properties are not eligible for the land tax exemption that applies to residential properties occupied by the owner. Upon sale, tax authorities automatically treat the transaction as a sale of commercial property. If the owner actually lived there and wants a tax deduction, this must be proven with documentation.
