I agree that the yield level will remain quite low for the next few years. The residential investor’s equation is indeed quite poor if prices fall. However, I am clearly somewhat more optimistic about the future of the Finnish portfolio than you, even though I am more pessimistic about the company’s book value. The company also negotiated its current financing package during the tightest period for obtaining financing in this cycle, which is why I assume there is some room for a decrease in current interest expense levels (H2’25: 4.3%).
Why I am on the positive side of the investment case, despite recognizing the negative drivers and challenges, is the current stock market valuation (P/NAV 0.65x) and the company’s share buyback program. In my opinion, the NAV is at a fairly realistic level when considering the undervaluation of Tallinn and the overvaluation of Finland at the moment. I don’t believe we will see 1x NAV pricing quickly, but I think there are reasonable grounds for the discount to narrow, or else more value can be created through share buybacks. I would like to see the company strive to make a Lemonsoft-style move.
Certainly, if one were to start selling off assets in Finland quickly now, it would not succeed anywhere near book values. However, I echo @investori86’s views. In good locations, prices/rents cannot continue indefinitely in a downward spiral without the Finnish economy developing very poorly. The very poor development of the Helsinki metropolitan area, however, is due a lot to overbuilding and overcapacity. I would see that there is also room for positive surprises now. As an investor, I personally tend to get interested when sentiment looks very bleak. Timing the bottom is, of course, very difficult, but I don’t perceive very much optimism about the state of the housing market either.
In Tallinn, about half of the apartments were built after 2019 (including sold apartments). The rest are roughly from 2013-2019, and the apartments are mainly in good locations, as seen in the map above. In my own valuation, I have used a 4.4% yield requirement vs the 4.96% book valuation. These sales have occurred at an average level of just under 4%. Relative to these, 4.4% is not a bad level, as I see that almost the entire portfolio can be sold into the owner-occupied housing market.