Finnish Property Prices Edge Up

Property prices in Finland are showing a slight gain when adjusted for inflation in the second quarter of 2011 in both old and new flats and terraced houses …

Property prices in Finland are showing a slight gain when adjusted for inflation in the second quarter of 2011 in both old and new flats and terraced houses around the country. Residential construction is surging, up 45% from last year and breaking the mold for a country that has seen sustained pricing booms throughout its history thanks in large part to subdued building of new homes. Since the global financial crisis, however, things have been less predictable for Finnish homebuyers due to the country’s sensitivity to price shocks in imported and exported goods. Unlike Finland’s housing market, the rental market is an area of slow growth, with half of the country’s units subsidized by the government. For more on this continue reading the following article from Global Property Guide.

Property prices in Finland are rising again. During Q2 2011, prices of old dwellings in blocks of flats and terraced houses went up by 1.42% q-o-q (0.52% in real terms) to €2,289 per square metre (sq. m.).

  • In Greater Helsinki, property prices rose 1.7% to €3,388 per sq. m. during Q2 2011
  • In the rest of the country, prices increased 0.6% to €1,657 per sq. m. during Q2 2011

The price of new flats and terraced houses has risen specially fast, up 3.1% during the quarter to €3,225 per sq. m..

  • In Greater Helsinki, prices went up by 0.7% to €4,475 per sq. m. during the quarter
  • In the rest of Finland, prices rose 4.5% to €2,775 per sq. m. during the quarter

During the year to Q2 2011 the average price of old flats rose 3.81%, according to Statistics Finland. However when adjusted for inflation, property prices rose by just 0.45%.
During the year to end-Q2 2011:

  • In Greater Helsinki, old apartment prices increased by 3.7% while new apartment prices rose by 7.7%
  • In the rest of Finland, old apartment prices rose 2.7% while the prices of new apartments increased by 8.2%.

Residential construction is powering ahead.  In May 2011, permits for residential block of flats and terraced houses rose 45% from a year earlier, while detached house permits went up by nearly 9%.  Residential construction volumes rose 15.4% during the year to May 2011:

  • Residential flat construction – up 34.1%
  • Detached house construction – up 5.4%
  • Terraced houses – up 12.6%

Finland’s violent house price cycles

Finland’s house price boom lasted from 2001 to Q2 2008. The upsurge in house prices was mainly due to:

  • Strong economic and wage growth.
  • Changes in the mortgage market, combined with low interest rates, which made housing more affordable for all income brackets. Outstanding housing loans to Finnish households grew 153% from €24.3b illion in 2000, to €67.6 billion in 2008; or from 18.4% of GDP to 36.3% of GDP.
  • The tax system. Owner-occupation is still privileged by the tax system, for despite reforms during the 1980s, a flat 29% tax deduction on mortgage interest remains in place, while imputed rental income and capital gains on permanent homes are untaxed.

From 1980 to the present, the country experienced four distinct house-price cycles:

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 FinlandHelsinkiRest of Finland
1983 – 198964.0%68.5%
1989 – 1993-49.2%-53.4%-44.4%
1993 – 19946.6%10.3%3.2%
1994 -1995-4.8%-6.3%-1.9%
1995 – 199945.0%62.8%38.0%
1999 – 2001-6.9%-5.5%-12.0%
2001 – Q2 200842.0%45.7%33.4%
Q2 -2008 – Q1 2009-6.4%-8.6%-4.0%
Source: Statistics Finland


The relative volatility of house prices in Finland is mainly due to:

  • the export-oriented economy’s sensitivity to global shocks;
  • the housing market’s high interest rate sensitivity; and
  • an insufficiently responsive supply side.

House prices are falling in Finland primarily because the two main causes of the house price boom (a strong economy, and low interest rates) no longer apply. But an additional factor is that the market has become more interest-rate sensitive:

  • In 1994, about 70% of new mortgages were variable rate.
  • Since 2001, more than 90% of new mortgages have been at variable rates, taking advantage of the historic low interest rates from 2003 to 2006.

The credit crunch

It was a severe shock to the housing market when interest rates on new loans rose in October 2008 to 5.53%, following a spike in inflation due to rising food import prices. The European Central Bank (ECB) had raised the repo rate by rapid steps to 4.25% in July 2008, from a record low of 2.0% in November 2005.

Combined with the global recession, these rate hikes soon set off a severe economic downturn across Europe, and in May 2009 the ECB was forced to bring the base rate down again to 1%. Finland’s average new housing loan mortgage rates fell to 2.55%.

Yet during the first half of 2009, new mortgages ran at only €1.805 billion per month, down from €2.574 billion/month during the same period in 2008.

Finland’s long housing boom was encouraged by a decade of under-building. Less than 30,000 dwellings were completed annually from 1994 to 1999, down on 40,000 units annually from 1983 to 1991 (with a peak level of 65,397 units in 1990).

Around 58% of dwellings are owner-occupied, 32% are for rental while other forms of tenure account for the remaining 10%. Around 40% of new dwellings in Finland are bought by housing associations, and 35% by private individuals.

Low yields and subsidized-rents

Finland’s private rental market is still relatively subdued, with about half of rental dwellings (about 800,000 units) receiving some form of government subsidy or support. Even with the complete deregulation of the private rental market in 1995, private rents are still distorted, due to the large social housing sector. Government subsidized rents are 25% lower than private rents in Helsinki, and 15% cheaper for Finland as a whole.

After the initial rapid rent increases after rent liberalization, recent rental growth has been slow. From 2001 to 2007, house prices in Finland rose by around 50%, while private rents trailed with growth of only 17%. In Helsinki, house prices rose 55% while private rents rose by only 12% over the same period. This has led to relatively low rental yields in Finland, ranging from 3.7% to 5.8% per annum in August 2008, according to the Global Property Guide.

In 2008, private rents rose 4.06% y-o-y, while government-subsidized rents rose by 5.3%.

In 2009 low inflation and weak demand, and a larger supply of units as home sellers lease out unsold second houses, are expected to moderate rent rises.

This article was republished with permission from Global Property Guide.


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