Property finance gains momentum as interest rates fall
The Finnish property market has slowed down in recent years. However, this situation offers good prospects for investors. For example, many banks provide property finance on favourable terms. Interest rates and borrowing costs peaked in 2023, leading to stagnation in the market. However, after the interest rates dropped, property prices started to fall, which led to increased activity.
In 2024, sellers faced difficulties due to the inability to refinance maturing loans. Despite this, the number of transactions was up in the previous year. According to experts at Trevian Asset Management, this trend will continue, and the sector will gradually recover.
The decline in value is attracting investors who are focusing on the long-term rental segment. At the same time, commercial properties with short-term leases are still in a rather precarious position. In this case, contract adjustment to the current level of indexation plays an important role.
As far as new construction is concerned, there are a number of constraints:
– higher prices for materials and services;
– high interest rates;
– tighter lending rules;
– falling property values.
These factors are forcing developers to be cautious and carefully select projects for investment.
Property market overview
The Finnish housing sector is showing positive momentum. Demand for property is gradually increasing, which is helping to reduce oversupply. However, these trends are uneven across the country. Some regions have a large number of studios, which are not yet in high demand among buyers.
New regulations for office conversions will come into force in Finland at the beginning of 2025. This decision aims to reduce the number of empty commercial properties that can become residential apartments.
The real estate financing situation is improving. The reduction in interest rates has prompted banks to renegotiate loan conditions, especially for companies. These changes will allow financial institutions to maintain their portfolios and encourage investment in new projects. At the same time, banks are becoming more prudent in order to preserve their balance sheets in the current low interest rate environment. They have developed algorithms to reduce the risk of credit losses, although the threat remains, particularly for the office property sector. This segment remains weak and shows no signs of a sustained recovery.
Forecasts of further interest rate cuts offer good prospects, including for banks. European financial institutions are already adjusting their lending conditions to attract new customers. However, Finnish banks do not yet have a clear competitive advantage over their counterparts in Central Europe and Germany.