Buying an apartment is usually among the largest purchases in a persons lifetime. In the second part of our blog series about Finnish real estate we cover how to buy apartments in Finland.
Where to find apartments for sale?
Typically, people search for apartments on the leading listing sites, which in Finland are:
You can also search for properties from various real estate agents’ websites, but leading listing sites give an overview of the whole market, since all real estate agents also list their apartments there.
How do you know what is a fair price for an apartment? The prices that are indicated on listings are asking prices for those properties. This means that the seller has indicated that they are prepared to sell at this price. However in so called "bid-sales" or "Tarjouskauppa" the initial listing price is artificially low in order to attract buyers. So don't be surprised if your bid gets rejected if you offer the listing in a "bid-sale".
House prices are always indicated as “Free-of-debt” prices (velaton hinta or vh.). It reflects the value of the apartment if all debts would be repaid and it wouldn't carry any of the housing company's outstanding debt. The “Free-of-debt” price is the selling price (myyntihinta) plus the apartments share of the housing company’s outstanding debt. Why are the prices indicated as “Free-of-debt” prices? As the amount of debt varies from one apartment to another, “Free-of-debt” prices place all apartments on a level playing field, and makes it possible to compare them with each other.
A good indicator for what the apartment could be worth is to look at what price similar apartments have been sold at. When looking for similar apartments consider the location (district), micro location (if it’s close to a metro or train station, schools or the sea), size, floorplan, age of the building.
The Ministry of Environment is providing a service that lists some of the housing deals that have been made in the past few years. You can search for prices of similar properties and what they have been sold for here: http://asuntojen.hintatiedot.fi/haku/. You can also try Blok’s free web based valuator that gives a price range: http://valuator.blok.ai. The price range is based on statistics from Statistics Finland.
You can also see the average square meter price for the most popular post codes in Finland from our comparison service: https://blok.ai/asuinaluevertailu.html.
Although the average prices and past deals give a rough indication of the value of similar type of apartment in the same area, it’s important to remember that each apartment is a unique object. Here are a few things that have been shown to affect the price negatively and positively:
Positive effects on price:
- Functional floorplan
- A well-funded housing company
- Recent surface renovations
- Expensive renovations have been completed (pipe- or facade renovation)
- Good local services and transport connections
- A developing local area
- Higher demand than supply (check how many other similar apartments are for sale in the same area, and for how long they have been up for sale to figure this out)
Negative effect on price:
- High maintenance fee
- Rented lot
- The surface materials of the apartment are old
- The various appliances that are a part of the apartment (e.g. fridge, oven) are old
- Expensive renovations have not been completed (pipe- or facade renovation)
- Permanent noise pollution from highways, trams etc.
- Lower demand than supply (check how many other similar apartments are on sale in the same area, and for how long they have been up for sale to figure this out)
Most people in Finland finance their apartments with mortgages. Practically all retail banks offer mortgages. There are, however, differences in the margins that the banks charge. Margins can be negotiated as they vary depending on your overall financial situation and how good of a customer you are for the bank. Big banks typically start by offering margins that are around 1-1.5%. It’s a good idea to shop around and negotiate for better margins. Depending on the situation, they can go as low as 0,6 – 0,7 %. Banks evaluate each customer separately and consider multiple factors: your income and ability to pay back the loan, your assets, creditworthiness and how good of a customer you are for that bank (do you have insurances or investments with the bank). The difference might seem minor, but for a 200 000€ loan with a 1% bank margin for 25 year, the bank will charge you 26 122€. If you manage to get a 0,3% lower rate you can save 8055€. That’s a pretty good saving by simply asking around different banks and making them compete for your business. Also make sure to check if there are any fixed fees you must pay in addition to the margin. The lowest margin might not always be the most economical option.
Mortgage lending has become more regulated in the past year due to fears that households are accumulating too much debt, and to prevent overheating of the real estate market. To curb this development the government has introduced a cap on mortgages. This means that the total amount of a new mortgage can be at maximum 90% of the value of the guarantees attached to the loan (95% for first time buyers). The primary guarantee for the mortgage is the apartment that is being bought. Because banks only account for 60-80% of the apartments value as a guarantee, the buyer must either have savings or other guarantees to cover the rest. Confusing? Yes, it’s slightly complicated and perhaps easier to understand though an example:
- You want to buy an apartment worth 100 000€
- The mortgage cap restricts the possible mortgage to 90 000 euros (or 95 000€ if you’re a first-time buyer)
- The bank accounts 70% of the apartments value as guarantee (70 000€)
- You need to have 10 000€ in savings and on top of that 20 000€ in extra guarantees
- If you want to purchase 100 000€ apartment without savings you need to have 31 111€ in extra guarantees (70 000€ + 31 111€ = 111 111€ * 90% = 100 000€)
Things to consider before buying
Check what renovations are scheduled for the next 5-years. Each housing company should have a renovation plan where this information can be found (“Pitkän tähtäimen suunnitelma or PTS”). If such a document is not available, you can check what renovations have been completed in the past from the house manager's certificate (“isännöitsijäntodistus”). Financially the largest and most costly renovations are the pipe-renovations (roughly every 50-years), facade renovation (roughly every 30-40-years) and roof renovation (20-40-years). A typical pipe renovation can cost 750€/m2 or more, so knowing what additional costs are coming up is crucial. You should factor in the upcoming renovation costs to the purchase price so you know that you can afford them. Typically, it makes sense to purchase an apartment after major renovations have been completed, since statistically the market price for an apartment is lower compared to the pre-renovation cost + money spent on renovation. The upside with buying before major renovations is that you can have a say in e.g. how your bathroom will look like. Additionally, the price of the apartment is lower before major renovations, so it’s easier to secure a loan from the bank to purchase the apartment.
If you’re buying an apartment from a house that is built on a rented lot, you should check if the rental period is running out anytime soon. Old rental agreements may be exceptionally cheap compared to the current market level, and when they eventually expire there might be a significant jump in the monthly land lease (included in the maintenance fee).
Housing company fees and finances
Make sure to check what the maintenance fee of the housing company is so that you are aware of the monthly fee that you must pay each month to the company. Also dive deeper into the company finances to understand more about the financial situation. A higher than average maintenance fee might signal that the house is not in a good shape as it requires constant repairs, whereas, a lower than average maintenance fee might signal that the company has some additional revenue sources (rental income) that offset some of the costs.
How is the neighbourhood developing overall? Are there major investments in nearby infrastructure? Investment in the surrounding urban area send a positive message about the neighbourhood, and has been shown to have a positive impact on residential housing prices.
Taxes and fees
When purchasing an apartment in Finland you must pay a transaction tax (“varainsiirtovero”) that amounts to 2% of the apartments “Free-of-debt” price. First time buyers are exempt from this tax, but are still required to report the purchase to the tax authorities.
If you buy the apartment directly from the owner, you have 2 months to file and pay the transaction tax. If you buy the apartment through a real estate agent, the real estate agent will make sure you pay this tax immediately after signing the bill of sales. If buying directly from the owner, you carry the responsibility of doing this yourself.
You can find more information about the transaction tax at the tax offices website: https://www.vero.fi/en-US/Individuals/Buying_a_home
Registering as a shareholder
Make sure to inform the housing company that you have purchased shares in the company so they can update the owner registry or "osakasluettelo". You can do this by submitting a copy of the share document (asunto-osake), the bill of sales (kauppakirja), and a copy of the tax receipts to the housing manager (isännöitsijä). If you buy the apartment through a real estate agent, the real estate agent will make sure you are added into the owner registry.
If you find old or hidden faults in the apartment that you weren't aware of at the time of purchase, the seller might be responsible for compensating you for these faults. If you find such faults, you should inform the seller as soon as possible and specify the fault. The period during which the seller has liability over such factors ends after 2 years.