Finland strengthens despite the pandemic
Lalaine C. Delmendo | January 22, 2022
By property type:
- The average price of terraced houses in Greater Helsinki rose strongly by 9.04% (6.69% inflation-adjusted) y-o-y to €3,728 (US$4,220) per sq. m. in Q3 2021.
- Prices of blocks of flats were up 5.28% (3.02% inflation-adjusted) to €4,404 (US$4,985) per sq. m. during the year to Q3 2021.
In the rest of the country, the average price of old dwellings increased by a more modest 2.86% (0.64% inflation-adjusted) to €1,654 (US$ 1,872) during the year to Q3 2021.
Demand remains robust, fueled by very low interest rates. In the first three quarters of 2021, total transactions of old dwellings rose strongly by 17.5% y-o-y to 60,033 units, following a growth of 11.8% during 2020, according to Statistics Finland. Sales transactions increased 13.1% in Greater Helsinki and by 19.3% in the rest of the country.
Dwelling permits and starts rose by 16.1% and 23.5% y-o-y, respectively, during the first three quarters of 2021. In contrast, dwelling completions fell by 6.6% over the same period.
Finland's economy is expected to grow by 3.5% this year, after registering annualized growth of 7.5% in Q2 and 4% in Q3 2021, according to the Bank of Finland. The economy contracted by 2.9% last year, its worst performance since 2009, due to the imposition of strict coronavirus-related measures.
In 2000 the government removed the requirement that a nonresident must obtain a permit to buy a secondary residential property in Finland, putting foreigners on exactly the same footing as Finns. However, foreigners need permission to buy property in the Province of Aland (Ahvenanmaa), an archipelago.
Apartment yields in Helsinki are moderate
Rental property gives very moderate returns in Helsinki. Gross rental yields range from 3.53% to 5.29%. Smaller apartments earn the highest rental returns, while bigger apartments earn the lowest rental returns.
Prices of 60 sq. m. apartments are now EUR 6,700 per sq. m.,.
Rents range from EUR 21.60 to EUR 27.40 per sq. m. per month.
Round trip transaction costs are moderate in Finland. See our Property transaction costs analysis in Finland and Residential property transaction costs in Finland, compared to the rest of Europe.
Rental income taxes are generally high in Finland
Rental Income: Rental income is considered as income from capital and is taxed at progressive rates, from 30% to 34%. Income-generating expenses are deductible from the gross rental income.
Capital Gains: Capital gains are considered as income from capital and are taxed at progressive rates, from 30% to 34%.
Inheritance: Inheritance tax is imposed at progressive rates of 8%, 11% and 14% on the inheritance of the spouse, lineal descendants, and lineal ascendants.
Residents: Residents are taxed on their worldwide income. Capital income is taxed at progressive rates, from 30% to 34%. Earned income is taxed at progressive rates, from 66.25% to 31.50%.
Buying costs are low in Finland
Roundtrip transaction costs are around 7.77% to 10.25% of the property’s price. Real property transfer tax of 4%, usually paid by the buyer, is sometimes included in the selling price especially if the transaction involves an agent. It takes about 32 days to complete the three procedures needed to register a property.
Tenant protection laws are lenient
Finland law and practice is neutral between landlord and tenants.
Rent: Tenancies are generally unregulated. Landlord and tenant may freely negotiate rents, but the courts may reduce the existing rent if it significantly exceeds the current average market rate charged on comparable apartments in the area.
Tenant Security: The landlord must give a termination notice of at least six months if the tenancy has continuously existed for more than a year, and a three-month notice is mandatory for leases existing for less than a year.
Finland’s economy recoveringThe Finnish economy grew by 4% in Q3 2021 from a year earlier, following a 7.5% expansion in Q2. With the economy’s stronger-than-expected performance recently, it is now expected to return to growth this year, with a projected real GDP growth of 3.5%, according to the Bank of Finland. This is at par with the European Commission’s 2021 forecast of a 3.4% economic growth for Finland.
“In spring 2021, economic growth was much stronger than expected, and both business and household confidence has improved in step with the progress of vaccinations and lifting of restrictions. GDP growth is projected at 3.5% in 2021 and 2.8% in 2022,” said Bank of Finland.
“The major downside risks to economic growth are still related to the COVID-19 pandemic,” the bank added.
The economy contracted by 2.9% last year, its worst performance since 2009, due to the imposition of strict coronavirus-related measures.
The eurozone debt crisis dragged Finland’s economy back into recession in 2012, three years after an 8.3% contraction during the 2009 global financial crisis. The economy shrunk by 1.4% in 2012, and the contractions continued in 2013 and 2014, with the economy shrinking by 0.8% and 0.6%, respectively.
In 2015, the economy, although freed from recession, barely grew. During the same year, Finland was named the weakest economy in the euro zone, which prompted the country’s finance minister to label it “the new sick man of Europe”.
At the heart of this has been Nokia’s inability to compete with the smartphone. Between 1998 and 2007, Nokia was responsible for 20% of all of Finland’s exports, and in 2000 Nokia alone accounted for 4% of the country’s entire GDP. But by mid-2012 Nokia was almost bankrupt, and its contribution to Finnish GDP was actually negative. In April 2014 Nokia sold its mobile phone business to Microsoft. Nokia’s decline left over 40,000 highly-skilled Finnish ICT workers unemployed.
The country’s exports were also plagued by the economic recession in Russia, as well as by Finland’s inflexible labor market and high labour costs.
The labour market is now returning to its pre-pandemic levels. In October 2021, the nationwide unemployment rate fell to 6%, from 7.4% in the previous year, according to Statistics Finland.
There were 164,000 unemployed persons in October 2021, down by 37,000 from a year earlier.
Finland’s budget deficit surged to 5.5% of GDP in 2020. The deficit is expected to fall to 2.4% in 2022, according to the European Commission.
Finland’s debt-to-GDP ratio increased to 69.5% last year, a sharp increase from just 59.5% in 2019. Public debt is expected to rise further to 71.2% of GDP this year.
Inflation accelerated to 3.2% in October 2021, the highest level since January 2012, mainly caused by higher costs of housing and utilities, as well as transport, according to Statistics Finland. Overall inflation averaged 0.7% from 2014 to 2020.