MANY real estate investors have been holding back in Finland lately, reports YLE.

The number of home loans taken out for investment purposes fell by around 25% year-on-year between March and April. The Finnish Landlords Association has reported that investor interest in buying property has declined since last fall, with an increasing number of lessors also considering shrinking their portfolios.

“In the old world, tenants took whatever apartment they got. From now on, tenants can view several apartments and choose the one that suits them best; landlords have to work harder to rent their apartment,” Joonas Oravaan investor with a portfolio of multiple properties, YLE summarized Thursday.

The Finnish public broadcaster pointed out that various trends in the housing market could be dangerous, especially for risk-laden investors. Interest rates and ownership costs are rising as landlords have to compete for tenants, increasing the risk that rental income will no longer cover debt service and ownership costs.

“If a real estate investor is running a lot of gears and hasn’t prepared for increases in interest rates and costs, challenges may be ahead as interest rates and costs rise simultaneously,” said Markus Aaltoneneconomist at the Bank of Finland.

However, it is difficult to assess the exact number of such investors in the market.

The statistics have yet to offer any indication that real estate investors are crumbling under the burden of their debt. Statistics from the Bank of Finland show that there are fewer arrears for loans taken out for investment purposes than for ordinary housing loans.

The statistics, he added, include refunds overdue for more than 90 days.

“Despite the pandemic and other uncertainties, problems with lending to housing companies or lending to investment properties have not increased in recent months. They are at a very moderate level,” Aaltonen said. “Generally, household debt has reached an all-time high. This increases borrowers’ vulnerability to rising interest rates.

Sakari Rokkaneneconomist at the Finnish Homeowners Association, also said it is unlikely that everyone who joined the housing boom in the era of no interest rates will be able to cope with the new reality without a hitch.

“I’m sure there are people who haven’t prepared for the situation, but we’re talking more about individual cases than a major challenge. No wave of forced sales is on the horizon,” he said.

Rokkanen recalled that the majority invest in real estate on a relatively small scale: Investors typically have a portfolio of one to two properties that they try to use to save for retirement. They generally have sufficient financial reserves to face the risks.

Investors with dozens of properties in their portfolio, on the other hand, often operate at least semi-professionally and have hedged themselves against risk by taking out fixed rate loans or loans with mechanisms such as rate caps to protect themselves. against rising interest.

Aaltonen from the Bank of Finland pointed out that real estate investors are getting into debt in particular through loans to housing companies, which encourage the use of gearing.

It was possible to buy a unit in a new property with little own financing, as up to 80% of the debt-free price was made up by a loan from the housing company. Monthly repayments may also have been low because housing corporation loans for new built properties are often structured such that no repayments are required in the first few years.

The Finnish government last week unveiled its proposal to overhaul the regulations for lending to housing companies.

The loans, he stressed, should not be more than 60% of the properties’ debt-free price and should not offer payment holidays in the first five years after construction is completed.

Aleksi Teivainen – HT


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