Interim reports | Finland’s largest construction company sees the light in the housing market

Finland CEO of the largest construction company YIT Heikki Vuorenmaan the vision is clear: the worst phase of the Finnish housing market is over.

“We don’t think the housing market will improve significantly this year, but we are cautiously optimistic that the recovery might start next year. The recovery of the market is affected by many things, about which we still need more information before we can be sure about it.”

One key thing is the interest rate. If the increase in consumer prices, i.e. inflation in the euro area continues to slow down throughout the fall, the European Central Bank can continue to cut its key interest rates and perhaps accelerate them next year.

Financial markets believe that the central bank will cut key interest rates two more times this year by 0.25 percentage points.

“Shorter sales times are already being reported from the market for used apartments, and banks have said that loan withdrawals have increased. Activity on the market is clearly better than a year ago.”

A possible recovery is also influenced by, for example, consumer confidence in the economy and the development of employment. In June, consumers’ intentions to buy a home picked up significantly based on the confidence indicator of Statistics Finland.

However, Statistics Finland also reported on Friday that the price of old shared apartments continued in June. According to preliminary data, prices fell in June across the country by 3.3 percent from the corresponding time last year and by 0.8 percent from the previous month.

Prices decreased from last year in all major cities.

Several based on the forecasts of research institutes, the recovery of the Finnish economy from the recession will begin in the fall. The recovery is hastened by slowed inflation, which strengthens the purchasing power of households and private consumption.

“April-June was the fifth consecutive quarter when the number of apartments we sold increased. The number increased by 50 percent from last year,” says Vuorenmaa.

On Friday YIT published its April-June interim report. It shows that the company’s difficulties have continued.

Turnover decreased by 22 percent to 434 million euros and adjusted operating profit by 50 percent to seven million euros. The weakened profitability was mainly due to the Finnish housing market.

The turnover of residential construction in Finland decreased by 51 percent to 99 million euros. Adjusted operating profit was six million euros in loss. Last year, in the same period, it was two million euros profitable.

The company’s balance sheet is weighed down by completed but unsold apartments. At the end of June, their number was 1,212, of which 867 were located in Finland. At the end of March, the number in Finland was 1,000.

“There are so few new apartments being built that at this sales rate all the apartments will be sold by the third quarter of next year.”

YIT did not start the construction of a single apartment in Finland in April–June.

In the Baltics and Eastern Central Europe, the company started building approximately 185 apartments for consumers, while the corresponding figure was over 500 in April–June last year.

Due to the freezing of the housing market, YIT’s indebtedness accelerated from 2021. Therefore, the main goal is to reduce the indebtedness to less than 50 percent. In the second quarter, the debt ratio was 97 percent and a year earlier it was 104 percent.

Interest-bearing net debt was EUR 788 million at the end of June.

“Of our debt, half a billion euros are accounting rent obligations and have a long maturity [juoksuaika] housing association loans, because Unsold but loans for apartments owned by us are on our balance sheet. It should be taken into account that the interest rates on housing association loans are very moderate.”

“

“At this rate of sales, all apartments will have been sold by the third quarter of next year.”

Summer at the beginning, attention was attracted by the one acquired by YIT expensive financing.

The company issued a EUR 100 million bond, the interest rate of which was the three-month Euribor plus a margin of 7.50 percentage points. The bond matures after three years.

“The issue was that we changed the maturity of the loans to a longer one, and the financing costs are naturally determined by the new market conditions. Due to the extension of the maturity, we only have 20 million euros of maturing loans this year and next year.”

The company therefore acquired financial room for maneuver until the market starts to become normal and trading starts again.

In order to reduce indebtedness, YIT continues to free up capital from investments and other non-core businesses.

“We have 1.8 billion euros of property and assets on the balance sheet. I’m not too worried about the debt, but we’re definitely going to reduce it.”