House prices are rising again in Finland
Last Updated: March 01, 2016
In Q4 2015, the average price of old dwellings rose by 1.2% y-o-y (1.4% inflation-adjusted) to €2,274 (US$ 2,507) per square metre (sq. m.), based on figures from Statistics Finland.
Blocks of flats rose by 2% y-o-y to €2,431 (US$ 2,680) per sq. m.. Terraced houses stagnated with a 0.1% increase, to €2,077 (US$ 2,290) per sq. m.
- In Greater Helsinki, the average price of old dwellings rose by 1.5% to €3,557 (US$ 3,922) per sq. m., during 2015. The average price of blocks of flats was €3,742 (US$ 4,126), while terraced houses cost €3,224 (US$ 3,555) per sq. m.
- In the rest of the country, the average price of old dwellings increased by 1% to €1,699 (US$ 1,873) per sq. m. Blocks of flats had an average price of €1,700 (US$ 1,874), and terraced houses at €1,698 (US$ 1,872) per sq. m.
New dwelling prices remained stagnant. In Helsinki, the average price of new dwellings rose by only 0.1% y-o-y (0.3 inflation-adjusted) to €4,879 (US$ 5,370). The average price in the rest of the country was around €3,085 (US$ 3,396), up by 0.6% (0.8% inflation-adjusted).
Apartment yields in Helsinki range from low to moderate
Rental property gives very moderate returns in Helsinki. Gross rental yields range from 3.60% to 4.36%. Smaller apartments earn the highest rental returns, while bigger apartments earn the lowest rental returns.
Prices of 35 sq. m. apartments are now EUR 6,900 per sq. m., significantly up on last year.
Rents range from EUR 18 to EUR 25 per sq. m. per month. This is close to our findings two years ago, when we found rents ranging from EUR 20 to EUR 25 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 32%. 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 32%.
Inheritance: Inheritance tax is imposed at progressive rates of 7%, 10% and 13% 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 32%. Earned income is taxed at progressive rates, from 6.5% to 31.75%.
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 will pick up in 2016Finland’s small population of 5.5 million, and its huge land area (338,145 sq. km), make it one of the world’s least densely-populated countries. Its estimated GDP per capita stood at US$42,159 in 2015, making it one of the richest nations in the world.
However, the country’s rising debt as well as the recent recession has brought government finances under pressure. In October 2014, Standard & Poor's (S&P) cut Finland's credit rating to 'AA+' from 'AAA. This leaves Luxemburg and Germany as the remaining Eurozone countries triple-A rated by all three agencies. The other two ratings agencies retained their triple-A credit ratings for Finland, although all three agencies gave the country a negative outlook.
Finland's debt-to-GDP ratio was around 59.3% in 2014, closer but still lower than the 60% of GDP ceiling imposed by EU. In 2015, the debt-to-GDP ratio is expected to have increased to 62.7%.
The country's posted a 3.3% budget deficit in 2014. It is predicted to fall below 3% in 2016, according to the European Commission.
The country's inflation rate in 2015 was -0.1%, down from last year's 1%.
In Q3 2015, Finland was named the weakest economy in the euro zone, with an economic contraction of 0.6% q-o-q (-0.8% y-o-y) following three years of stagnation, prompting the country's finance minister to label it "the new sick man of Europe".
At the heart of this has been the rise of the Smartphone and the inability of Nokia to compete. 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 (though it is still the second largest mobile company in the world by sales volumes, but its business is low-end and profitability is low) left over 40,000 highly-skilled Finnish ICT workers unemployed.
This pool of highly skilled workers may yet fuel a Finnish start-up boom. Meantime, times are tough. Wages in Finland are high, and the country is uncompetitive. GDP contracted by 0.4% in 2014, 1.1% in 2013, and 1.4% in 2012. Ideally Finland's currency should be devalued, but Eurozone membership makes this impossible. The country also has a rapidly ageing population and one of the highest rates of government spending in Europe, and the Russian economy, a major trading partner, is in deep recession.
Economic output is still 5% below pre-crisis levels. Unemployment continues to rise, hitting around 9.3% in January 2016, up from 8.7% in 2014, according to Statistics Finland. Yet one should not exaggerate. Finland's situation is not as bad as Italy's.
The finance ministry predicts that the economy will pick up in 2016 and 2017, with 1.2% growth forecast for both years, with economic activity driven by domestic demand instead of foreign trade. GDP rose just 0.2% in the full year of 2015.
In the April 2015 parliamentary elections the Centre Party headed by millionaire Juha Sipila won 49 seats in the Parliament, beating former Prime Minister Alexander Stubb, whose party came third with 37 seats. Second was the rising eurosceptic Finns Party, led by the charismatic Timo Soini, which won 38 seats.
Sipila became Prime Minister on May 29, 2015, and he has pushed the country in the direction of austerity, in an attempt to regain competitiveness. Sipila has also moderated the outcry against refugees, by offering to share his own house with refugees.