Housing trade | An economist introduces a crazy phenomenon to the housing market: The seller may even have to pay the buyer

Suomen Yrittäjie’s chief economist, Juhana Brotherus, estimates that this year, in Finland, we may see housing transactions with a negative selling price in growth centers. According to Nordea’s Juho Kostiainen, this would require a drastic drop in the price of apartments.

Finland the housing market may experience “crazy” housing transactions during the current year, where the seller of the apartment pays the buyer of the apartment for a property with a large housing association loan, predicts the chief economist of Suomen Yrittäjie Juhana Brotherus.

Such housing transactions with a negative sales price can be caused by the recent drop in housing prices.

“The correction movement in apartment prices is so large that we are in a situation where the sale price of apartments can be negative in new areas of growth centers. However, that does not mean that the debt-free price of the apartment is negative,” says Brotherus, who has followed the housing market for a long time.

Incongruous a housing transaction situation can arise, for example, in the following residential property: The debt-free price of a new apartment was 100,000 euros a year ago, of which 85 percent was a company loan. The sale price of the apartment was thus 15,000 euros.

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If the price of the apartment has fallen by, for example, 16 percent in a year, then the debt-free price of the apartment is now 84,000 euros. Since the company loans for some new projects have 1–2 years of grace period, the size of the company loan has remained at 85,000 euros.

“In order for the market price of such an item to be realized and deals to be made, the seller of the item has to pay a thousand euros to the buyer like crazy,” says Brotherus.

“Negative deals won’t become common or daily, but I think we can see negative deals this year in growth centers as well.”

Apartments A negative selling price, if realized, would be a new phenomenon in Finland’s growth centers.

In the past, real estate has even been sold at a negative debt-free price in Finland, but these deals have only taken place outside growth centers in remote regions and areas with weak demand.

The background of the new phenomenon is the increase in the use of housing association loans and interest-free loans in recent years.

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According to the Bank of Finland, in more than 60 percent of the transactions of new properties completed at the beginning of the current year, the share of corporate loans was greater than 60 percent. In one fifth of the deals, the share of corporate loans was over the 70 percent, which is considered remarkably high.

At the beginning of the year, there were about seven percent of the entire stock of housing associations with loans for which repayment exemptions were granted. Even before the corona pandemic, the share of loans with a repayment grace period of the entire housing association loan portfolio was less than four percent, Bank of Finland told in April in Euro&Talous magazine.

Brother says that the housing market currently has “massive” shares of corporate bonds combined with long grace periods.

“In Finland, there have not been such large shares of corporate bonds in previous housing price dives. The longer the price slump lasts, the more likely and more common housing transactions with a negative selling price will become,” says Brotherus.

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Nordic an economist following the housing market Juho Kostiainen estimates that the turnaround predicted by Brotherus will not become a very widespread phenomenon in Finland at least.

“Perhaps individual deals can be done this way, but in the big picture it is not very likely,” Kostiainen says.

For example, the Financial Supervisory Authority (Fiva) has been concerned about large corporate loans. According to a report completed by Fiva in the spring of 2018, banks have not taken into account the mortgage applicant’s large corporate loan share when they have assessed the customer’s ability to pay when interest rates rise.

Now, interest rates have risen very quickly in the last year.

Kostiainen says that company loans often finance about 70 percent of the deals in new developments in Finland. Somewhere the share is 80 percent.

According to him, the prices of new properties should drop by as much as 20–30 percent in order for the phenomenon predicted by Brotherus to come true.

“There are no such price drops visible in our forecasts.”

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