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Finland: house prices up slightly in Helsinki, but rest of the country slows
The average price of old dwellings in Greater Helsinki increased by 3.33% (2.56% inflation-adjusted) to €3,753 (US$ 4,673) per square metre (sq. m.) during 2017, according to Statistics Finland. The average price of blocks of flats rose by 4.37% to €3,992 (US$ 4,970) per sq. m. The average price of terraced houses rose by 1.22% to €3,322 (US$ 4,136) per sq. m.
In the rest of the country, the average price of old dwellings increased slightly by 0.41% (-0.34% inflation-adjusted) to €1,708 (US$ 2,127) during 2017. Flats had average prices of €1,718 (US$ 2,139) per sq. m., up by 1.12% y-o-y. Terrace houses, on the other hand, had a slight price drop of 0.29% y-o-y to an average price of €1,697 (US$ 2,113) per sq. m.
Overall, the average price of old dwellings in Finland rose by 1.87% y-o-y (1.11% inflation-adjusted) to around €2,341 (US$ 2,915) per sq. m.
The primary market also follows this general trend with new dwelling prices in the whole country rising by 1.9% (1.2% inflation-adjusted) to €3,658 (US$ 4,545) per sq. m. in 2017. New dwelling prices in Helsinki rose by 3% (2.7% inflation-adjusted) while they increased by just 1.3% (0.6% inflation-adjusted) in the rest of the country.
“Smaller family sizes, better employment opportunities and growing interest in an urban lifestyle are driving people into cities,” said Danske Bank. “Growth in housing demand has raised prices and caused a construction boom in Helsinki and a few other towns, while the real estate market in the rest of the country has remained more or less flat or is even declining.”
Residential construction activity is surging. During the first eleven months of 2017, dwelling permits issued for residential buildings rose by 16% to 42,836 units from a year earlier, according to Statistics Finland. Over the same period, dwelling starts surged 21.4% while completions were up by 18.9%.
Finland is expected to see a two-tier housing market this year, with Helsinki and other major cities projected to continue to register robust house price rises. House prices will increase in Helsinki (3%), Kokkola (2.4%), Tampere (1.6%), Espoo (1.6%), and Turku (1.5%), according to real estate firm Kiinteistömaailma, but will fall in Pieksämäki (-3.8%), Salo (-2.9%), Mänttä-Vilppula (-2.2%), Parainen (-2.0%) and Heinola (-1.8%).
After a three-year recession, the Finnish economy expanded by 3.1% in 2017, according to the Bank of Finland. The economy is expected to expand by a modest 2.5% this year.
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 are restricted from acquiring property in the Province of Aland (Ahvenanmaa), an archipelago. Foreigners need to ask permission from the Finns to purchase property in this archipelago.
Apartment yields in Helsinki range from low to moderate
Rental property gives very moderate returns in Helsinki. Gross rental yields range from 2.86% to 4.11%. 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 17.3 to EUR 23 per sq. m. per month. This is close to our findings two years ago, when we found rents ranging from EUR 20 to EUR 25 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 improvingThe Finnish economy expanded by 3.1% in 2017, amidst strong private consumption and growing employment, according to the Bank of Finland. It was the fastest growth since 2007.
The economy is expected to expand by a modest 2.5% this year, based on the central bank forecast.
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 the rise of the Smartphone and the inability of Nokia to compete. 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 2008-9 the writing was on the wall, and the February 2011 partnership with Windows failed to save the company; 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 (though it is still the second largest mobile company in the world by sales volumes, but its business is low-end and profitability is low) 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. In June 2016, a Competitiveness Pact was signed to reduce labour costs. The agreement includes the following conditions, which mostly are effective in 2017:
- A wage freeze for one year;
- An increase of 24 hours in the annual working time (still without raising wages);
- A higher share of social security payments to employees; and
- A reduction of holiday bonuses in the public sector.
The government pledged income tax concessions for participating employers worth approximately around €315 million (US$391 million) to €515 million (US$640 million).
As a result, exports grew faster than imports. The value of goods exports grew by 12% in November 2017 from a year earlier to €5.2 billion (US$6.46 billion) while imports increased by 8%.
In 2017, Finland’s unemployment rate fell to 8.6%, from 8.8% a year earlier, according to Statistics Finland. Finland’s jobless rate is projected to fall to 8.3% this year and to 8% in 2019, according to the ECB.
Finland’s budget deficit stood at 1.4% of GDP last year, down from 1.7% in 2016. The deficit is expected to fall further to 1.2% of GDP this year and to 0.8% of GDP in 2019. Finland’s debt-to-GDP ratio is expected to fall slightly to 62.1% this year, from 62.7% last year.
Overall inflation is expected to accelerate to 1.3% this year and to 1.7% in 2019, according to ECB.