2023: A tough year for Finnish real estate, with a positive turn at year’s end

By admin On Jan 25, 2024

Property sales at the Kiinteistömaailma office in Helsinki on January 4, 2024. LEHTIKUVA

The Finnish housing market faced significant challenges in 2023, with a noticeable downturn in sales, according to data from the Real Estate Federation’s Price Monitoring Service. The total number of property transactions plummeted to 50,935, a steep 24.5% drop from the 67,500 sales in 2022. This decline marked a difficult period for the real estate industry, particularly influenced by changes in the financial landscape.

A key factor in this downturn was the dramatic fall in home buying intentions during the summer of 2022, primarily due to changes in the European Central Bank’s interest rate policies. The 12-month Euribor rate, commonly tied to Finnish mortgages, turned positive in April 2022 for the first time after a prolonged period of negative interest rates. This shift led to a rapid rise in market interest rates, peaking at 4.228% on September 29, 2023, before starting to decline as rate hikes curbed inflation. Finland, being particularly sensitive to interest rate changes due to the prevalence of variable-rate mortgages, felt these changes acutely in the housing market. However, the silver lining was that as interest rates began to decrease, the situation for Finnish homeowners improved relatively quickly.

The slowdown in housing transactions led to a significant reduction in construction activities. Although many housing projects initiated during the era of zero interest rates were completed by the end of 2023, the number of newly constructed homes sold through real estate agents dropped drastically from 5,894 in 2022 to just 2,160 in 2023.

The Finnish government, which took office in June, focused on strengthening the housing market and promoting homeownership in its housing policy. 2023 marked the first year when mortgage interest could no longer be deducted from taxes, a change poorly timed with the economic situation but rational in the long-term perspective.

July 2023 saw new regulations on mortgage repayment periods and housing company loans, limiting the maximum repayment period to 30 years and capping housing company loans at 60% of the debt-free price. These changes negatively impacted the housing market, particularly new home sales and construction.

The government’s program outlined improvements and reforms to the ASP loan system, set to take effect in April 2024. These improvements are critical for first-time homebuyers, playing a vital role in household wealth accumulation.

In response to the economic environment, the government made several key changes in late 2023. The housing market saw a significant boost from the removal of the transfer tax exemption for first-time homebuyers and the reduction of transfer taxes for share-based apartments and detached houses. These changes led to increased market activity towards the end of the year, especially among first-time buyers.

Another important decision was the Financial Supervisory Authority’s restoration of the housing loan cap to its original 90% in December 2023, which was reduced to 85% in 2021. This move provided households and banks with more flexibility in obtaining and granting mortgages, thus facilitating smoother housing transactions.

Looking ahead to 2024, the housing market is expected to recover, potentially growing by about 15% compared to 2023. Improved household purchasing power and positive changes in interest rate adjustments are anticipated to bolster consumer confidence, shorten selling times, and lead to a gradual increase in housing prices. The demand for larger family homes is particularly high, while the market faces a mismatch with an abundance of smaller homes. City population growth and a shift in housing prices are likely to stimulate the market further.

Given the decrease in housing prices in 2023, the current period presents an opportune moment for market assessment and exploration. Realistic pricing remains crucial for successful sales in the year’s market. For those changing homes, the size of the bridging finance is a key consideration.

Source: www.helsinkitimes.fi