Coronavirus hits an already weak Finnish housing market.
Lalaine C. Delmendo | April 29, 2020
The economy is projected to contract sharply this year, mainly due to repercussions of the coronavirus pandemic and the measures taken to prevent it from spreading.
Finland's housing market was already slowing in 2019. The average price of old dwellings in Greater Helsinki increased by a meager 0.84% (0.07% inflation-adjusted) to €3,704 (US$ 4,000) per square metre (sq. m.) during 2019, a slowdown from y-o-y rises of 3.26% in 2018, 2.04% in 2017, and 2.74% in 2016, according to Statistics Finland.
- The average price of blocks of flats in Greater Helsinki rose by 1.49% to €3,961 (US$4,277) per sq. m. in 2019.
- Terraced house prices dropped slightly by 0.21% to €3,313 (US$3,577) per sq. m. in 2019.
However in the rest of the country, the average price of old dwellings fell by 2.31% (-3.07% inflation-adjusted) to €1,563 (US$ 1,688) during 2019.
The primary market is much more vibrant with new dwelling prices in the whole country rising by 5.98% (5.16% inflation-adjusted) to €4,627 (US$ 4,996) per sq. m. during 2019. New dwelling prices in Helsinki rose strongly by 9.71% (8.86% inflation-adjusted) to €5,739 (US$ 6,197) per sq. m. while they increased by a modest 2.21% (1.42% inflation-adjusted) to €3,879 (US$4,188) in the rest of the country.
Demand remains robust. In 2019, total transactions of old dwellings rose by 3.7% y-o-y to 63,073 units, according to Statistics Finland. Over the same period, transactions increased 5.4% in Greater Helsinki and rose by 2.1% in the rest of the country.
Finland's economy grew by about 1% in 2019, a slowdown from the previous year's 1.7% growth and the lowest growth in four years.
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 to contract sharply in 2020The economy is expected to contract sharply this year, with an estimated real GDP decline of 5.5%, due to the coronavirus pandemic, according to the Ministry of Finance. The government has imposed strict measures to restrict movement.
The Finnish economy expanded by about 1% in 2019, a slowdown from the prior year’s 1.7% growth, amidst weaker global economic activity, based on figures from Statistics Finland. It was the lowest growth in four years.
“Everything depends on how deeply the economy plunges and how long it stays there,” said MikkoSpolander of the Ministry of Finance. “The danger is that the longer the economy suffers, the greater the difficulty in reviving it.”
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 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 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.
Finland’s unemployment rate rose to 7.3% in March 2020, from 6.9% in the previous month and 7% a year earlier, according to Statistics Finland.
Recently, the government unveiled a €4.1 billion (US$4.4 billion) coronavirus bailout – the largest ever emergency budget in Finland’s history. Support for businesses and workers will be raised by €1 billion (US$1.1 billion), while about €600 million (US$649 million) will be spent for the purchase of medical supplies, medicines and protective equipment. The new package comes on top of the measure announced in March 2020, amounting to around €500 million (US$541 million). A third round of funding is expected in May.
Unsurprisingly, Finland’s budget deficit is expected to widen this year by €14 billion to €16.6 billion, which is equivalent to 7.2% of GDP, according to the Ministry of Finance. The country’s deficit stood at 1.1% of GDP last year, up from 0.8% in 2018.
Finland’s debt-to-GDP ratio is projected to rise sharply this year to nearly 70%, from 59.4% of GDP last year.
Inflation slowed to 0.6% in March 2020, the lowest level in two years, mainly caused by lower prices of fuels for personal transport equipment and light fuel oil, according to Statistics Finland. Despite this, inflation is expected to accelerate to 1.4% this year and to 1.5% in 2020, based on the European Commission’s forecast published in February 2020.