Swiss investment bank UBS said that the Swedish capital had the third most over-valued property market in the world, behind London in second place and Vancouver in first.

It examined 18 cities around the world and concluded that six of them were at risk of a housing bubble. Making up the rest of the top-six were Sydney, Munich and Hong Kong.

“Over the last 12 years, the real house price level in Stockholm has doubled. The pace of growth accelerated in the last two years as growth rates stood near 15 percent,” said the report, but noted that low interest on mortgages had stabilized the cost of owning a house in the same period.

It further added that property valuations had increased the most in Stockholm over the last four quarters, followed by Munich, London and Amsterdam.

The report said low-interest rates in Sweden and elsewhere had contributed to “overheating of markets for urban residential properties in recent years. As a result, prices in London, Stockholm, Munich and Zurich have reached new record levels after adjustment for inflation”.

Earlier this year, the Swedish founders of Spotify sparked debate after they suggested that a lack of available housing is making it difficult for them to attract the best talent, to the degree that they could be forced to grow in other countries rather than Sweden unless the situation improves.

While properties in many parts of Sweden are generally inexpensive compared to the rest of the world, The Local has previously reported on Stockholm's price boom, including the capital's acute housing shortage on the rental market, which is believed to be driving property prices upwards for buyers as well.

UBS criticized the city's divided rental market, which means that those without points in the local authority's queue for price-controlled apartments have to resort to the often vastly overpriced sub-letting market.

As for the buyers' market, the government has taken steps to bring prices down, including making it mandatory for home owners to pay off their mortgage, but the measures have so far had little effect.

“A dysfunctional rental market provides no incentives to counteract the long-lasting supply shortage. And recently enacted regulations to cool down the housing market have not shown any significant results yet,” concluded the report.

A bostadsrätt apartment (a type of housing ownership common in Sweden) in Stockholm currently costs 55,374 kronor ($6440) per square metre, compared to a national average of 37,118 kronor, according to real estate statistics agency Mäklarstatistik. A detached house in the capital area costs 42,199 per square metre, compared to a national average of 22,464 kronor.

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