Interest rates are rising and international real estate investors are liquidating their purchases, so the investment housing market is quieting down.
Housing investment there will be quiet months in the professional market.
The sales volumes of large apartment investors will decrease and the prices of apartments in the capital region may drop by more than 10 percent in the coming winter, estimates the director of real estate consultant JLL Mikko Kuusela.
The estimate applies to the professional market, not to residential transactions between individuals. The professional market refers to investors who can buy several apartment buildings as their investment targets. In Finland, these are, for example, housing investment companies Kojamo and Sato or real estate funds.
The reason behind the decline is, first of all, the rise in interest rates, because large investors also finance their housing transactions with debt. When financing costs rise, it is worth making lower purchase offers.
“No one buys apartments with their own capital, but everyone uses debt. The fact that debt money has been cheap has ensured returns. Now the price of the debt has risen. If you want the same return, you have to pay less for the housing stock,” says JLL’s Kuusela.
Secondly the price level is lowered by the activities of international investors. In recent years, foreign investors have bought apartments in Finland for hundreds of millions of euros, says Kuusela. This has also increased prices.
“Many international investors digest the purchases that have been made in Finland. Apartments have been bought with pretty rosy pictures, high occupancy rates and profit expectations have been trusted,” says Kuusela.
According to Kuusela, it can be said that the housing investment bubble has burst. The hot market situation has cooled down very quickly.
Is the housing investment market threatening to freeze completely in the capital region?
“It probably won’t freeze completely. It can already be seen that new sites are not launched in the same way as in recent years. In recent years, construction has been strongly driven by rental housing. Certainly, construction companies have to think about what kind of projects should be started.”
The Finnish housing market is not particularly unpleasant in the eyes of investors, but according to Kuusela, the problems are the same all over Europe. According to Kuusela, the change in the investment housing market does not depend on Finland’s location next to Russia, which is waging a war of aggression.
“The situation in the financial market has more of an impact. In the discussions, the fact that we are involved in the NATO process does not come up at all.”
For tenants the fading of the housing investment market can be good news to some extent. Investors want to hold on to their tenants, so big rent increases cannot be made without risking losing tenants.
“There are limited opportunities to influence the rent level,” says Kuusela.
“Fortunately, there is a free rental market in Finland and moving is easy, because there is a lot of free supply.”
According to Kuusela’s assessment, it is not possible for most investors to make rent increases of 7–8 percent. The actual increases can be around 2.5–3 percent, in which case the owner’s financing costs can rise more than the rent due to the interest rates.
“In the near future, there is no possibility of the same returns on equity as we are used to,” says Kuusela.
When the existing apartments don’t move either, investor-led and studio-focused construction can stay for a while. However, Kuusela believes that the slowdown in construction will later turn around again so that there is a shortage of supply and rents will rise faster.
According to Kuusela, the lull in the housing investment market is temporary.
“My suspicion is that the rest of the year will be calm, but at the beginning of next year the market will have to start again.”
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