Improved economic conditions in Finland and low interest rates continue to boost the house prices in the country.
Old homes in Greater Helsinki saw average price increases of 2.95% during Q3 of 2018, and were selling at €3,666 per m2. The average price of an apartment rose by 3.7%, to € 3.898 per m2 and the average terraced house increased by 2.32% to € 3,310 per m2. These are official statistics taken from Statistics Finland.
The rest of the country has seen a drop in year- on- year home prices for Q3 2018. The average price of an older home fell by 0.31%, with apartments falling by 0.12% and terraced houses fell by 0.56%.
The overall price of older dwelling in the country rose by a mere 1.17%, year-on- year for Q3 2018. New dwellings rose across the country by an average of4.08%, to € 3,773 per m2. In Helsinki they rose by 7.22%, to € 4,962 per m2.
Despite the rising prices, demand continues to fall. The total number of transactions for older homes fell by 8.2%, year-on-year by November 2018 to 53,849 homes sold. This follows declines in 2016 and 2017 of 0.6% and 2.4%, respectively. The drop in transactions fell by 8.9% in greater Helsinki and 8% in the rest of Finland.
Even though the number of dwelling permits dropped by 17%, in the first 10 months of 2018, compared to the same period in the previous year dwelling starts rose by 5.9% and completions rose by 21.4%.
The housing market is expected to continue to move in two different directions in 2019.
The value of properties will continue to fall outside of Finland’s major urban areas. The main contributing factor is urbanization and the decreasing prospects for education and employment in these areas.
The economy of Finland grew by 2.7% in 2018, according to the Bank of Finland, but they expect the growth to be a moderate 1.9 % at the beginning f 2019, and will slide to its long-term potential rate of 1.5% toward the end of 2019.
The last three years of growth were fuelled by the recovery in Finnish goods and services, an increases household consumption, growth in disposable income and low interest rates, which have encouraged spending. Employment prospects increased, with an extra 60,000 jobs created n 2018.
Gross rental yields vary from low to moderate in Helsinki and range between 2.86% to 4.11%. Smaller apartments, like in all larger cities, yield the highest returns. The average price for a 60 m2 apartment is € 6,700 per m2 and rents range from € 17.3 to €23 per m2. The prices do not differ much from those of the previous two years.
The law in Finland is neutral between landlords and tenants.
There aren’t any regulations for tenancies and the landlord and tenant can freely negotiate rents. Courts may reduce excessive rents if they are not within the average market rate of comparable apartments in an area.
The landlord must give a termination notice of at least six months in advance if the tenancy has continued for over a year. Three months notice is mandatory for tenancies of less than a year.
Non- residents could not buy a secondary property in Finland without a permit up to 2000, when the law was changed. Now foreigners have the same rights as Finns. However, foreigners still need permission to purchase property on the archipelago of Ahvenanmaa in the Province of Aland.
Buying costs are low in Finland and range from 7.77% to 10.25% of the property purchase price. The real estate transfer tax is paid by the buyer at 4%, but will sometimes be included in the selling price. The registration procedures can take up to32 days to complete.
Rental income is taxed as income on capital at progressive rates, which vary from 30% to 34%. Income –generating expenses are deductible.
Capital gains are also taxed at the same rate of 30% to 34% as it is considered to be income from capital.
Inheritance tax is imposed at progressive rates of 8%, 11% and 14%. The tax is paid on the inheritance by the spouse, lineal descendants and lineal ascendants.
Residents are taxed on their worldwide income at progressive rates of 30% to 34% for capital income. Earned income is also taxed at progressive rates from 6.5% to 31.50%.
Finland experienced an 8.3% contraction during the 2009 global financial crisis. As it started to recover, it was dragged down again by the 2012 Eurozone debt crisis, with the economy shrinking by 1.4%. This contraction continued into 2013 and 2014, and the economy shrank by 0.8% and 0.6% respectively.
Finland was named the weakest economy in the Eurozone in 2015, and even though it had moved out of the recession, its economy barely grew.
One of the major industries of the country, Nokia, was unable to compete with the ever changing mobile phone market and the development of the new Smartphones. Between 1998 and 2007, Nokia was the biggest exporter in Finland, responsible for 20% of all exports. The company accounted for 4% of the country’s GDP. Nokia tried to save itself by partnering with Windows in 2011, but this did have the desired results. An almost bankrupt Nokia sold its mobile phone business to Microsoft in 2014. Even though Nokia phones are still sold around the world, it is the second largest mobile phone company in the world by volumes- the business is low-end and low profit – the sale of the company left over 40,00 highly skilled ICT workers unemployed in Finland.
The economic recession in Russia, Finland’s main trading partner, also affected Finland’s exports. Finland has an inflexible labor market and also has high labor costs. The Competitiveness Pact was signed in 2016, and it came into effect in 2017. This included a one year wage freeze, an annual increase of 24 hours work time without extra remuneration, bigger share of social security payments to employees and a reduction in holiday bonuses. Participating employers were given tax concessions.
This resulted in faster growing exports and a reduction in imports. The unemployment rate fell to 6.25 in 2018, from 7.1 in the previous year. The country is expected to have a 1.6% inflation rate in 2019 up from 1.2% in 2018 and the debt -to -GDP ratio is expected to fall slightly from 59.8% in 2018 to 58>5% in 2019.