How real estate develops in Finland: market overview
At the end of 2022, Finland’s real estate market was experiencing a downturn due to rising inflation and economic uncertainty. In addition, the market was pressured by rising interest rates. According to CBRE, investments in Finnish real estate in the 4th quarter of 2022 decreased by 58% compared to the previous period and amounted to 973 million euros. Of that, €270 million went to office space, €200 million to the healthcare sector, and €100 million to housing. The market slowdown continued in the first half of 2023, with record growth for the country in the first two quarters of the previous period.
According to experts, the sector’s recovery will begin in the second half of 2023 once there is a noticeable easing of macroeconomic pressures. In 2022, the cost of housing in Finland has fallen by 5%. And while experts predict a further decline. In Helsinki in August 2022, there was a drop in prices by 1.6%, and at the end of the year, it reached 4.6%. And the capital market is considered the most in-demand in the country, which means that the situation in other regions is worse.
Analysts predict that positive dynamics in the real estate sector will be seen by early 2024. The slowdown in the market is due, among other things, to a slowdown in economic growth. Over the past year, the inflation rate in Finland has increased from 4.4% to more than 9%, negatively impacting the population’s purchasing power. Rising mortgage interest rates exacerbated the situation, and in 2022, banks revised the index eight times. However, despite the programs of restraint, inflation continues to increase.
Economists say the most vulnerable were real estate owners in expensive areas. With mortgages in the hundreds of thousands of euros, even a slight increase in the interest rate seriously affects the budget.
Despite the slowdown, the construction market continues to grow actively, which applies only to Helsinki. In the rest of the country, the number of issued permits decreased by about three times from the beginning of summer to the end of 2022.
As for the Finnish real estate market’s profitability, rental high-liquid objects bring about 4.2% per annum. This figure is considered average for the EU; for example, the yield in Greece is about 5.4%, and in Ireland – 7.4%. At the same time, in Finland, real estate tax operates at the rate of 22.5%, which is much higher than the rates in other states. For example, in France, this figure is 10%, and in Cyprus, this duty does not exist.