Purchasing Real Estate in Finland: A Slice of Happiness

The 2018 World Happiness Report named Finland as the world’s happiest country. In fact, the top four of the 156 countries measured were all Nordic – Finland, Norway, Denmark, and Iceland (“unhappy” Sweden popped in at number nine.  The good old US of A?  Eighteenth).

The 2018 report is a cumulation of 2015-2017 while the prior report contained data from 2008-2010.  Comparing the two reports, you may want to explore Finland as a second home, if for no other reason than improving your mood.  The latest report shows that the US happiness index is down 0.315 points while Finland gained 0.100 points. This may not seem like a lot, but the index is an eight-point scale, making a 0.415 point separation a significant 19 percent.

While I wasn’t feeling especially in need of happiness, my visit to Finland was fascinating.  First, I’ll put you at ease – in the cities, everyone under 60 speaks English. In fact, Fins often speak a handful of languages including English, Swedish, German, and Russian (they occupied Finland off/on until independence 101 years ago). The Finnish education system encourages polyglots (speaking multiple languages).

Work the Layovers

While there are no direct flights to Helsinki, that’s not necessarily a bad thing.  Most of the time you just want to get someplace, right?  But with Helsinki, you can work the layovers.  For example, my return trip netted bonuses.  I left Helsinki at around 7 a.m. and landed in London around 9:30 a.m. I had a free 10-hour layover in London (during the day when everything was open) before a flight to New York where I landed at 10:30 p.m. (same day). I could have taken a midnight flight to Dallas, but overnighted in New York (cost nothing besides a hotel, so why not?).  I spend the following day traipsing around New York before returning to Dallas that evening.  For zero airfare impact and the cost of one extra hotel night in New York, I got 10 hours to run around London (and run around I did) and a full day in New York.

Finnish Housing Market

Statistics Finland released their latest report on the state of the Finnish real estate market in February.  Unlike many markets, Finland reports their numbers using the average cost per square meter (which I’ll convert to square feet).  In 2017, existing homes in greater Helsinki increased 3.33 percent to an average of $434 per square foot. Flats increased 4.37 percent to $462 per square foot on average, while townhouses and homes rose 1.22 percent to $384 per square foot.

For Dallasites, this may seem reversed to our way of thinking that homes should be more costly than higher-density condos and high-rises. However, even though Helsinki has 500,000 fewer residents within its city limits, it’s much more dense with 7,779 residents per square mile versus Dallas’ 1,497. Dense urban cores equate to vibrancy which translates into higher prices.  A house on the outskirts is less expensive/desirable than a flat in the thick of the city.

Outside greater Helsinki, prices were significantly lower as were price changes.  Existing dwellings outside Helsinki increased a meagre 0.41 percent in 2017 to $197 per square foot. Flats rose 1.12 percent while townhomes and free-standing homes dropped by 0.29 percent. This tracks with many areas where rural lands are diminishing in value as populations become more urban.

For those seeking a new home or apartment, prices are substantially higher than existing dwellings (which may require renovation). That said, the rate of appreciation has been similar. Countrywide, the average new dwelling cost rose 1.9 percent to $422 per square foot versus a 1.87 percent rise for existing dwellings to $271 per square foot.

The Recession had little effect on Finnish housing prices compared to the USA.  From the second quarter of 2008 until the first quarter of 2009, housing dropped an average 6.4 percent overall. Helsinki lost 8.6 percent in value while the rest of the country lost only 4 percent. However, from 2010-2017, prices shot up 12.4 percent overall and 18.9 percent in Helsinki. Outside Helsinki, prices are rebounding at a slower 6.5 percent average. Helsinki took a slightly larger hit during the Recession, but has rebounded significantly quicker.

That’s not to say housing in Finland is always great. It simply illustrates that the global Recession didn’t hit as hard.  In Finland, other factors have shaken the housing market much more. A period of high interest rates between 1989-1993 saw house prices drop nearly in half before lower rates and a building boom saw prices refloat 45 percent between 1995-1999. Similarly, a building boom between 2001-2008 saw housing rise 42 percent. This puts the Recession drop of 6.4 percent into perspective.

Unlike the US, Finland’s current building boom is beginning to fill in the hole dug by a decade of under building. Recession building saw fewer than 30,000 dwelling units built annually versus the 40,000-plus needed for population growth. In the first nine months of 2017, residential building permits rose 16 percent to 42,836. Extrapolating the full year and 57,114 housing units will be built.

With all this construction you’d think finding a property would be easier. But in 2017, existing home sales dropped countrywide by 2.4 percent year-over-year and 2.56 percent in Helsinki.  People are staying in their homes, perhaps for the same reason many in hot US markets are … they don’t know where they’d move to.

Typical Property Types

Helsinki doesn’t offer condos as readily as American’s might expect.  Instead, apartments or flats are most often sold in a way akin to a co-op where the owner purchases a share in a corporation that equates to the unit. Unlike the US, one of these co-op corporations may own multiple buildings. From there on, the building is run in a way similar to a condominium.  There is a board elected from residents who manage and operate the building(s) ensuring they are updated and repaired as needed.  They also enforce rules on apartment renovation, noise, and the like.

Just like a condo, co-ops charge residents a monthly fee for the operation of the building.  It’s important to understand what is included in this fee. Some include utilities like water and heat while others won’t. There are also occasionally what we’d call a special assessment that’s employed to pay for a large, unexpected or unplanned for expense. Many buildings take out loans for the work (which are repaid by owners‘ assessments). Check to see if there are any outstanding loans and unit obligations.

Single-family detached or attached home purchases are the same as you’d expect.

Finland offers an interesting way to get onto the property ladder.  Called Osaomistusasuminen (I can’t pronounce it either), a tenant and owner agree on a price to purchase the property. The tenant pays a portion of that amount, typically < 15 percent up front, and then pays traditional rent (that doesn’t accrue to the purchase price). At a time designated in the agreement (several years later), the tenant is then able to purchase the remainder of the apartment based on the initial contract price (zero price appreciation while they were renting). During the leasing period the tenant may be able to up their ownership percentage to reduce their overall burden at the end.

For renters there’s another oddity.  Called a Right-of-Occupancy, it’s best used by renters who never want to move and who don’t want to pay the real estate transfer tax homeowners do (more later on that). Essentially, a tenant pays 15 percent of the property’s assessed purchase price with the remaining 85 percent coming from a loan from the Housing Fund of Finland. The tenant pays the money back like a mortgage or rent payment called an occupancy fee. Tenants don’t ever own the home, but they also can’t be thrown out as long as they’re paying their monthly occupancy fee. Like I said, this is odd to an American ear. But this method has the benefit of stability and the 15 percent “down payment” is returned with interest. Tenants also wind up paying slightly less in rent than a traditional rental property and the 15 percent down payment isn’t subject to the transfer tax.

Transfer tax is due on all property transactions. For a free-standing home it’s 4 percent of the purchase price and 2 percent for a co-op apartment.  Halving the transfer tax is another benefit to Helsinki’s high co-op to condo ratio.

Oh, and in Finland there are no title companies. Real estate agents provide title conveyance in conjunction with any bank involved.

Lönnrotinkatu 23 A

Built in 1925, this two-bedroom, one-bathroom property has 1,358 square feet and is listed with Sanna Backman of Habita for €845,000 ($1.040 million).  At $765 per square foot, you can tell right away the Helsinki $462 average is long gone with this unit.  Obviously averages aren’t great indicators when you want to buy above-average properties in great locations.

This unit is on the second floor (ground, first, second), which to an American is what we’d call the third floor. This is the type of building you hope to get into.  It has the double whammy of not only being in an historic building, but it also faces one.

We love a floorplan.  You enter at the bottom with a half bath in the entry. In the diagram above, the RT is the dining room and the OH is the living room.  Two bedrooms are noted as MH and the kitchen with K. There’s a potential walk-in closet (alkovi, currently used as a playroom) in the master bedroom with both bedrooms sharing a main bathroom complete with washer/dryer and a sauna.  It’s Scandinavia — there’s almost always a sauna. Window-wise there’s a main bay window in the living room with multiple back windows facing onto a central courtyard/private garden.

As I said, this unit is in an historic building and faces one as well.  The views out the bay window to the building across the street are all you could want.

Standing at that bay window and looking back into the apartment, the tall ceilings jump out at you and are accentuated by that floor-to-high-ceiling bookcase.  The door next to the bookcase leads to the master bedroom. Pass the pocket doors and you’re into the curved dining room and adjacent kitchen.

Closed off via the pocket doors is the well-lit dining and kitchen area with windows facing out into the courtyard.  Buildings of this era, especially in Europe, tended to be flat to the street while hiding large central courtyards giving residents two great views and a peaceful green-filled oasis.

One of the reasons I featured this home is because just down the street I came across this bicycle. Obviously it called to me, the same way Helsinki may call to you.  It’s a very friendly place with little language barrier that would make a full- or part-time transition pretty easy to make.  Couple that with its waterfront location, super clean, very green, and youthful urban vibe and you could do a lot worse.  In fact, I also visited Estonia during this trip and all I can say is that I’d return to Helsinki tomorrow but am unlikely to return to Estonia in this life.

Remember: When I’m not stirring up trouble in Dallas, Texas or Honolulu, Hawaii for Candysdirt.com and SecondShelters.com, I’m off scouting interesting locations for a second home.  In 2016 and 2017, the National Association of Real Estate Editors recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards. If you’re a Realtor with second home clients who’d like me to feature their journey, shoot me an email sharewithjon@candysdirt.com. Be sure to look for me on Facebook and Twitter. You won’t find me, but you’re welcome to look.