Sweden’s property market is feeding a boom in high-risk, high-return real-estate bonds. It’s a trend that’s upended how things used to stand, as Norway’s fossil-fuel industry loses its dominance in speculative-grade issuance.

This year’s supply tally from Nordic borrowers in the real estate industry is running at a record 32 billion Norwegian kroner equivalent (USD 3.5bn), two and a half times the total for the oil sector, according to data compiled by Arctic Securities AS and Stamdata. Five years ago that ratio was reversed.

“The Swedish market is growing very rapidly and that’s mainly thanks to transactions in the real estate sector,” said Claes Bahri, head of sales at Arctic’s Stockholm office. Bahri expects real estate transactions to continue to dominate the region’s bond sales given strong demand, where fund inflows are closing in on last year’s record levels, as well as potentially stricter capital requirements in the bank market -- a traditional source of funding for property companies.

Sweden’s FSA is proposing to add USD 1.6bn to the capital requirements of the country’s three biggest banks to ensure the industry is better prepared for potential losses in commercial real estate. That could push up the cost of bank loans and drive even more companies toward the region’s high- yield market.