Reasonable is, in my view, exactly the right term. However, you cannot call it a good yield. For example, if a property appreciates in value by the rate of inflation (averaging 2-3%) per year, its real value only remains constant. This means the real return stays at 5%, unless you can raise the rent significantly faster than the general rise in costs (Consumer Price Index), which the legislation does not allow for unless the tenant changes.
You can probably read between the lines that I still consider apartments to be too expensive:
The capital appreciation elevator no longer works as it used to. Values have dropped across the board by 20% or even more, and there’s no end in sight. At the same time, polarization is starting to occur: properties in remote areas are becoming worthless, and capital appreciation exceeds inflation only in the most desirable areas.
Apartment prices are still too high relative to the rental income they generate. There are many properties in poor condition within the housing stock, and getting a return on these practically requires being able to renovate them yourself. The cost of materials used for renovation rose sharply after COVID. An acquaintance fully renovated their studio apartment themselves, and it still cost 40,000 euros.
On top of everything, due to Trump’s antics, inflation threatens to gallop again, and central banks are already under pressure to raise key interest rates.
The costs of housing cooperative (taloyhtiö) renovations have also risen significantly relative to rents. This lowers the yield on older apartments when rents do not keep pace with renovation needs. The decline in property values compensates for this slightly, but I have a gut feeling it’s not enough. The collateral value of apartments against loans for these renovations also suffers from this, meaning the decrease in value is not necessarily a good thing either.
Fortunately, one can influence these factors at least to some extent. Firstly, of course, by considering the optimal size of the housing company when thinking about major renovations. And secondly, by examining your own apartment’s percentage share of the renovation cost liability at the time of purchase. In some housing companies, the number of shares per square meter for a small unit can be absolutely outrageous compared to large apartments, whereas in others, the square meters and number of shares go hand in hand.
And regarding that last point: when considering those cheap “high rental yield” properties, it’s really worth thinking about the collateral value. In the worst-case scenario, no bank will agree to debt-finance the renovations. And in a slightly better situation, the margins are outrageous compared to the offers received by more valuable housing companies.
I don’t have specific experience, but I would imagine this depends heavily on which area the apartment is located in. On the other hand, the fact that it’s being completed this summer might suggest it’s in an area where the developer believed it would sell regardless of the market.
The biggest potential for discounts is likely in apartments where the decision to build (or the pricing) was made before the market completely froze and they still remain unsold.
Yle writes about a phenomenon particularly common in golf shares, where toxic assets end up with insolvent “buyers,” potentially in exchange for compensation paid by the seller:
This phenomenon is difficult to intervene in and can jeopardize the position of other shareholders to the point that the housing company (taloyhtiö) drifts into bankruptcy. Unfortunately, in Finland, a housing company has no way of influencing who can purchase its shares. This risk simply must be acknowledged. It would require a fairly significant overhaul of legislation to prevent this kind of activity.
When someone buys a vacant commercial space for a few hundred euros, there is a very strong suspicion that money is actually being transferred from the seller to the buyer. Another way a “hospice caretaker” (saattohoitaja) can make money is by selling everything removable from the apartment.
All such housing companies with large street-level commercial spaces are quite risky. Traditionally, commercial spaces have had a 1.5x coefficient on their maintenance fees (vastike), so their share of the entire company’s fee income is substantial in that kind of 2-3 story building in a small town.
One must remember, of course, that those commercial premises can also be owned by the housing company, and in some areas, there is plenty of demand.
But otherwise, I agree with your message. Even in the suburbs of the largest cities, those owned commercial spaces are often a real risk, at the latest when high payment multipliers kick in during major building renovations. And certainly, a truly large commercial space, even in a building undergoing a plumbing renovation (LVIS), can be a challenge even in a good location when the payment multipliers are steep.
I’ve heard of some commercial property owners, especially in remote areas, trying to negotiate those maintenance fee coefficients (vastikekerroin), only for the general meeting to refuse. As a result, the commercial unit either ends up with a “hospice carer” (saattohoitaja) or the company owning the unit goes bust. In these cases, that 1.5x maintenance fee that never gets paid becomes the downfall of the housing company.
There have also been attempts to donate or sell these commercial spaces to the housing company for a single euro, but they won’t accept.
In situations like that, the board and the general meeting should think very carefully about what the least-bad solution is, since there are no good options on the table.
Developers usually hold out until the bitter end to ensure the sale price looks good on paper, making it appear in statistics as if property values are rising year after year. I would suggest proposing that the developer commits to paying the maintenance and financing fees (hoito- ja rahoitusvastike) for 2–3 years. This can easily result in a discount worth tens of thousands of euros on the actual price.
Real Estate Investment Manager Antti Hänninen presents Alexandria’s Real Estate Market Review. The review delves into the general economic situation as well as the residential and real estate markets.
Free apartments available in Kuhmo: a studio offered for one euro and a two-bedroom apartment even for free. However, they are not entirely free, as the two-bedroom apartment comes with 5,000 euros in housing company debt (taloyhtiölaina).
Prices have been sliding downwards for four years now. Tuomas Viljamaa, CEO of the Central Federation of Finnish Real Estate Agencies, believes that giving away apartments for free will become more common.
According to OP Pohjola, 30% of Finland’s housing stock will become vacant over the next 20 years, primarily affecting apartments in remote villages.
When talking about apartments in Kuhmo, I wouldn’t discuss them in the same breath as the general nationwide decline in housing prices. In many remote locations, that price drop started at the latest when the financial crisis hit, and it has been an almost continuous downhill slide since then.
Free apartments may indeed become more common, but so will apartments with a negative purchase price. Similar to golf shares, apartments are “sold” to people with empty pockets, maintenance fee arrears increase, and even housing companies with a healthy ownership base collapse.
And this phenomenon likely won’t just stay in the wilderness of Kainuu; it will even hit vibrant municipalities when the housing stock is sufficiently poorly maintained and worthless.
I’ve been reflecting on how a housing company could protect itself from this type of activity, where shares are sold to a “straw man” with no assets. Would it be sensible to include a redemption clause in the articles of association, allowing the housing company to buy the shares back and potentially rent out the apartment, even at a low price? Of course, if the building empties out, you eventually end up with one elderly lady “ruling” the entire apartment block. However, a right of redemption could certainly provide protection against individual “ticking bombs.”
On the other hand, transaction volumes in remote areas are so negligible in this economic climate that the statistics for the whole of Finland likely consist mainly of data from major cities—and even within those, from the most sought-after areas.
There isn’t really a way; of course, a consent clause could be added to the articles of association. Usually, by the time shares are sold to someone with no assets, the apartment has been on the market for a long time and has surely been offered to the housing company as well for a nominal fee, but they don’t want to buy it. Often, these units can’t even be rented out. It’s simply a matter of who is left holding the “Old Maid” card.
If I were in need of a new apartment, I would be putting on my “buying trousers” right now. Prices have been falling for a long while and the general sentiment is still poor, but signs of a turnaround are starting to appear everywhere. It’s a good buying opportunity, perhaps even a “value investor” type of entry point.
