Housing valuation level

Real estate investing
4274

First apartment bought in 1997, after which a new apartment in 2002 and the current one in 2012.

The purchase price of the first apartment was approximately 80,000 euros.

The purchase price of the second apartment was significantly higher, and the purchase price of the third apartment was significantly higher than the second apartment.

These matters are not relevant either, because now we are comparing how much higher housing (i.e., cash flow) has been in the same apartments when owned vs. rented, and finally, the net value of the current apartment as of this moment.

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4277

But are the alternative costs, i.e., practically the rent of the apartment?

When I bought my first home in a relatively affordable suburb back then, the starting point with a few tens of thousands of own capital was already that the loan principal repayments + interest and maintenance fee were less than the rent level of a comparable apartment.

I bought a second home during the financial crisis with a 100% loan, utilizing the collateral value released from the previous one. Right from the start, all costs - including the loan principal repayment - were very moderately above the rent level of a comparable apartment.

The third apartment I use myself is a terraced house apartment. Again, the same thing, meaning almost the entire purchase price was financed with a loan using the released collateral value. I can’t find comparable properties for it in the rental market in the area, but on the aso-side (right-of-occupancy housing side), there is supply of the same age group. In those, the maintenance fees are almost the same as the maintenance and loan servicing costs, including principal repayments, for that apartment.

4278

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I compared this, but of course it’s case-specific (and the amount of interest affects it)

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4279

You should have said right away that it was a housing elevator. I understood that the apartment bought in 1997, converted to current value, was €80,000 and now its value is €1,000,000, and the renovations done over 28 years are parquet + kitchen.

The housing elevator (asuntohissi) is one of the biggest reasons why owner-occupancy has been so popular and why it is still mistakenly considered a foolproof way to get rich. However, the housing elevator is no longer an automatic process, and one’s personal finances cannot be built around it. The elevator has been broken throughout the 2020s, and there are no guarantees that it will ever return to operation, let alone at the same rapid pace it once could, as the cornerstones of Finland’s economic growth are on a significantly weaker footing in the 2020s than ever since World War II. This is despite interest rates falling and real estate agents and the construction industry alternately announcing the warming of the housing market and a potential housing shortage for almost two years now.

It’s certainly nice to reminisce about the good old days :slight_smile:

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4280

Number of Young Households Decreased in the First Quarter of 2025 | Statistics Finland

“According to Statistics Finland, there were 2,854,000 households at the end of March 2025. The number was 6,600 fewer than at the end of the previous year. The decrease particularly affected households where the oldest person was under 30 years old, and households where the oldest person was 60 years old or over.”

Even though the population is growing, the number of households is decreasing, and the change starts with young people. This means people are staying longer in their childhood homes and shared apartments instead of single-person households.

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4281

If we also add the appreciation of housing, which in Helsinki has been, depending on the location, probably 500 - 800% since 1995 – meaning that one markka has turned into 0.9 - 1.4 euros – then the years have been very much in favor of homeownership.

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Another cut to housing price forecast | Kauppalehti

Downward revisions to housing price forecasts continue, now it’s S-Bank’s turn.

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4283

And for example, the mortgage repayment method also affects it, if we are only evaluating the momentary cash flow.

Statistics also overlook many short-term price changes. For example, back in 2008-2009, it was possible to make really good purchases temporarily, even though the decline didn’t look nearly as bad in the statistics, at least on a quarterly level.

And of course, at the bottom of the 1990s price collapse - to which the previous writer referred - it was truly possible to make those affordable purchases. And for such a long time that it was visible in the statistics too.

The Helsinki metropolitan area, at least for Helsinki itself, has admittedly been known as an area with low rental yields. On the Turku-Tampere axis, for example, the figures are already quite different.

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( Statistics Finland - Review of Housing Price Development, May 2006)

Average square meter price in Helsinki: 2025Q1*, the average square meter price for studios was 4658.0 €/m², for one-bedroom apartments 4275.0 €/m², and for two-bedroom or larger apartments 4266.0 €/m². ( Helsinki - Realized apartment sales, square meter prices & housing price development)
The actual appreciation is approx. 400% (1995 statistics for the capital region, meaning a higher square meter price in Helsinki). So, an apartment valued at 80k in 1995 would be worth 400k in 2025 (in addition to the burden of renovation costs).

If you look at the previous image I provided, between 2006-2024, a person living in a rental has saved approximately 150 euros/month more (Copilot’s image analysis). When considering that Euribor was “ideal” for a long time during this period, a person living in a rental saved relatively less; however, during the period 1997-2006, Euribor was higher:
image
Because Euribor was higher, a person living in a rental saved more. Copilot estimates that between 1997-2024, a person living in a rental would save approximately 240 euros/month more (assuming linearity of rent).

By investing this index, 300k is obtained, meaning the capital of a housing investor (400k) is larger. However, no renovation costs or down payment for owning an apartment, etc., have been considered here. If the down payment was, for example, 5000 at the beginning, the capital would already be the same value.

I’m not saying that housing investment has been bad at all, but saying it’s the best form of housing is wrong.

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4285

One should also consider the aging of the apartment. Although on average, the square meter prices of homes have risen by about 400%, it’s unlikely that the value of an average individual home has risen as much, because it is 30 years older now.

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4286

Do I understand correctly that by investing 250 euros per month in an index since 1997, the investment would currently be worth 300 k€?

I can state that the monthly costs of the first apartment were certainly not 1500 FIM/month more than the rental expenses for the same apartment.

The purchase price of the next apartment was 3.5 times higher, and its loan and maintenance fees were certainly not 900 euros higher than the rental expenses.

From experience, I know that in the 00100 - 00210 postal code area, apartment prices have risen by at least 600% since 1997, meaning 8000 FIM/m2 has changed to 8000 euros/m2.

4287

For larger family apartments, a comparison of rental properties and owner-occupied properties provides more insight into the renting vs. owning discussion.

My own example of owner-occupied housing:
Loan costs €605/month
Maintenance fee including water €345/month
Electricity including transmission €100/month (electric heating / on average)
totaling €1,050/month, of which just over €300 goes towards the principal repayment.

From the same area, there is one apartment of similar or larger size available, with a rent of €2,500/month. This is, however, 35 square meters larger than our home.

Expanding to the entire city and setting the rent to under €1,200/month, there are 23 options. A few are in complete need of renovation, in some, income and asset information as well as housing need are checked, and a couple are apartments owned by a local landlord known for their lawsuits. About five apartments remain, all of which would require some degree of fixing up.

For one-bedroom and two-bedroom apartments, the renting model still works, but for family apartments, owner-occupied housing seems to be almost a forced option at the moment. Especially if there are location requirements. I myself hope for walking and cycling distance to the services we use, as well as good public transport connections.

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4288

Well, if you have a flat in Jakomäki in a building that hasn’t been renovated in the last 30 years, then that’s probably exactly the case. But for example, in the Helsinki city center area, old valuable buildings are fundamentally in much better condition than 30 years ago, and price development has been favorable.

Around 1993, one could really find very affordable apartment deals in the city centers of growth centers, and the appreciation has multiplied housing wealth. In the suburbs of the same cities, the situation has often been a bit more sluggish.

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4289

[quote=“Jopinaattori, post:4286, topic:1478, full:true”]Do I understand correctly that by investing 250 euros per month in an index since 1997, the value of the investment would currently be 300 k€?
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Over 300k, if invested since 1993 in the SP500, which is probably one of the most invested-in indices in the “world”:
image

[quote=“Jopinaattori, post:4286, topic:1478, full:true”]From experience, I know that in the 00100 - 00210 postal code area, apartment prices have risen by at least 600% since 1997, meaning 8000 mk/m2 has changed to 8000 euros/m2.
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Yes, prices have developed approximately like that in those areas, as you said, but 400% is the average price increase in the Helsinki area; individual areas develop differently. It’s not relevant to compare the best areas, it’s like comparing individual stocks to this.

[quote=“Jopinaattori, post:4269, topic:1478, full:true”]In hindsight, it is clear to me that it would have been a mistake to have been a tenant from 1997 to this day.
[/quote]
I agree with you on your 80k apartment at least, as my calculations for rent were a bit straightforward for the period 1997-2006. But as a generalization, I still wouldn’t say that owner-occupied housing or real estate investing is in any way a winner compared to stocks.

[quote=“Jopinaattori, post:4266, topic:1478, full:true”]This only works when, at the same time, apartment prices have risen and every month “rent” has been paid to the bank in the form of amortizations and interest, and maintenance fees to the housing company.

This is reality, and alternative investments are just theoretical calculations where the new monthly capital is very small.
[/quote]
These investments in the index continue to rise due to the compound interest effect, and I don’t believe that the value of the example 320k apartment would grow faster. But an apartment bought in 1997 in valuable areas of Helsinki can indeed be considered a successful investment!

4290

Doesn’t the benefit of owning one’s own home start to grow considerably after the example’s analysis period? Once the loan is paid off in 20-30 years (faster in my case), significantly more money is left over. That can then be invested as one wishes.

When renting, costs remain the same throughout life, while in an owner-occupied home, there are naturally renovations, but the costs of loan interest theoretically decrease as payments are made.

The review period also matters. Currently, housing prices have fallen by 20%, and stock prices are near an all-time high. However, fundamentally, stocks are a more volatile investment.

Someone once said, “only invest what you can afford to lose.” Based on that principle, I have paid off my home, because it gives much more room to maneuver in that regard. When there is no debt, there are inherently very few mandatory fixed costs, giving the concept of “what you can afford to lose” a new meaning.

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4291

Let’s take the period of examination as the age range 25-65 and the loan period for the apartment as 25 years, and use the extra savings of 150€/month for a tenant, as formed in an HS news article:

IMG_0207

If we calculate a person buying a 50m2 two-room apartment in Helsinki at the current square meter price of 4275€/m2 and the value increase being 300% over the next 40 years. Down payment amount 4%.

Apartment purchase price: 213 750€

Down payment: 8550€

After 40 years: 855 000€

In the building, pipe and facade renovations after 20 years at a price of 600€/m2 and 100€/m2, totaling 35 000€.

The apartment owner invests their money into an index after paying off the loan for the last 15 years:

Rent increases by approx. 3.5% per year, at which point the tenant’s rent is 2600€/month when the apartment is fully paid off. From this, the maintenance fee is deducted (also increasing by 3.5% to 500€), leaving 2100€/month for the owner-occupier to invest for the last 15 years:

IMG_0206

Wealth for the owner-occupier: 1,735 k.

For the tenant: 1,686 K

(because the 35k savings from renovations were invested into an index at the 20-year mark:)

IMG_0208

Of course, if one can pay off the apartment faster, they can start investing in the index earlier. This example is for Helsinki, where there has been a strong increase in square meter prices.

It’s everyone’s own view whether they trust that SP500 returns will remain strong for the next 40 years or that Helsinki’s square meter price will grow by 300% from its current level over the next 40 years…
In that case, the price would be “only” 17,100€/m2, so you’d probably only have familiar faces as neighbors :slight_smile:

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4292

I’m not quite getting a full clear picture of all your numbers.

If the apartment’s rent is initially 2100€/month and one were to calculate the loan payment to be that much (2100€) minus the maintenance fee, then the loan repayment would hardly last 25 years.

I quickly tested your example apartment’s price with a loan calculator. The down payment couldn’t be the same, as for an apartment of that price, it should be a little over 21000€.

In any case, after that, a 13-year loan with a 5% interest rate would mean a repayment of less than 1700€. I don’t have the energy to correct all the numbers now, but I’d be surprised if it took 15 years, plus a bit for renovations.

It might be that the numbers look quite different if someone living in an owner-occupied apartment starts that bigger saving almost 10 years earlier? Or if one saves a little bit on the side all the time.

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4293

Has the SP500 return been 10% per year for the last 27 years, calculated with compound interest.

My understanding is that the SP500 has indeed risen by 600% during this time. However, this is not a very relevant figure in this discussion, because a renter could only invest a few hundred euros per month into the index, which then grew with the index.

In my opinion, the SP500 index is the wrong metric, because hardly anyone has invested in the SP500 index for the last 25 years.

My understanding is that the domestic Hex has only risen a meager 100% during the same period.

Considering the capital of a renter, which is a few extra hundred euros per month, the real return over 27 years comes from dividends compounded. Even then, capital gains taxes must be deducted from the return.

In my opinion, especially for the SP500, the index’s appreciation is primarily based on tech stocks, which have paid no dividends at all or very low dividends.

Furthermore, it should be remembered that one’s own home is also very much a mental matter, where comparing it to some index return is of very little significance.

Finally, no one knows what each asset class will yield over the next 25 years, which is why such a significant matter as housing should not be reflected against potential returns, which may well not be realized at all in any of the different options.

With one’s own home, the only certainty is that each monthly payment ensures that one day there will be a debt-free roof over one’s head, and at that point, the maintenance fee vs. rent is a winning horse for the homeowner.

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4294

Well, in the example, that money has probably been put into a low-cost growth fund, and not five hundred US stocks picked into a portfolio with index weighting and taxes paid on dividends in real-time.

That it certainly does not ensure. In growth centers, that dream often shifts as new debt arises in the form of major renovations. In areas with population decline, the situation can be more unpleasant, meaning the housing company falls into ruin even when the apartment loan is still being paid off.

Sometime in the 1980s, the average length of housing loans in Finland was around 10 years. At the turn of the millennium, it was around 15 years. Nowadays, 20-25 years. According to bank forecasts, it will soon be 30 years.

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4295

You can still choose the loan duration yourself, right? We took a 15-year loan for the previous apartment, and for the current one, a fixed installment plan for 8 years (but falling interest rates are pushing it towards 7 years).

Less surprisingly, the bank has always suggested longer durations.