Global Credit Crisis Has Little Impact on Finnish Transaction Volumes
- Finland
- 03/05/2008
- Roschier, Attorneys Ltd. - Finland
The Finnish real estate market has seen another record year in 2007, with a transaction volume of EUR 5.7 billion just topping the figures of 2006 (EUR 5.6 billion). In comparison to 2006, also the number of transactions has been greater in 2007.
The Finnish real estate market started expanding rapidly some five years ago. Like in Sweden, in the relatively underdeveloped real estate market the yield levels were generally higher than in Central Europe and in the UK, attracting a large number of – initially mostly opportunistic – foreign real estate investors. In 2007, foreign investors overpowered domestic investors by being involved in more than 60% of all transactions that year. With so many players active in the Helsinki Metropolitan Area (HMA), domestic investors were the first to direct their attention to investment opportunities in other parts of Finland. Cities such as Tampere, Oulu, Kuopio, Turku and Vaasa were recognized as some of the most attractive growth centers. This trend was, however, rapidly adopted by foreign investors and has led to numerous acquisitions by foreign investors outside the HMA in 2006 and 2007, such as the EUR 65 million purchase of the Revontuli shopping center in the heart of Rovaniemi by British investor Boultbee. The increased competition on investment opportunities outside the HMA has led to lower yield demands and more and more occasions where properties were sold at equal yields as required for similar properties in the HMA.
Another distinctive feature of the Finnish real estate market constitutes the fact that Finnish companies, in particular the industrials, traditionally have held and continue to hold a lot of real estate on their balance sheets. However, sale and leaseback transactions are becoming more common and this trend is expected to continue. A distinct example was the recent sale and leaseback by Finnish elevator manufacturer KONE of its Helsinki head office to the German open ended fund HANSAimmobilia, for a purchase price of EUR 35 million and a 10 year lease period. It is also becoming increasingly common that a buy-out acquisition of an industrial target is soon after followed by the target company divesting its real estate holdings – even its core assets – in a sale and lease back transaction.
Interesting is also the role that Finnish pension insurance companies have played in the real estate market in the past few years. Owning significant real estate portfolios, they contributed to the real estate boom by divesting considerable parts thereof to foreign investors hungry for opportunities and by converting their direct real estate holdings into indirect real estate fund investments. The trend is now reversing a bit, as some Finnish pension insurance companies are again looking to directly acquire property portfolios. However, it remains to be seen whether their holdings in Finland will reach the previous levels as they are at the same time striving for more geographical diversification of their real estate interests.
It is worth mentioning that in January 2008 amendments were introduced to the provisions of the Finnish Value Added Tax (VAT) Act relating to real estate investments. Although the impact of these amendments on the terms used in transactions remains to be seen, pricing advantages in the form of a lower transfer tax exposure may be gained through the introduction of a proportionate repayment duty of deducted VAT (included in the construction costs) in case of a change in the taxable use of a property. Further information on this topic may be found in our special edition of Roschier Real Estate News that deals in more detail with the amendments to the VAT Act introduced in 2008 and that has been published at: www.roschier.com.
What applies to the terms used in real estate transactions in Sweden applies likewise to Finland: the terms have not undergone significant changes in the past year and also on the financing side of Finnish real estate transactions a similar decrease was seen in terms of leverage to value with borrowers having become more cautious under influence of the global credit crisis. However, unlike in the UK where the real estate market is currently experiencing a significant downturn, the global credit crisis had surprisingly little impact on the real estate transaction volumes in Finland. Although the high leveraged investors have been less active in the last half year of 2007, strong equity investors were eager to take their place with the German open-ended funds playing a most prominent role. One effect has, however, been that the less attractive property portfolios have been pulled from the market. It is doubtful whether the credit crisis is to blame for this, as it could also reflect the generally high-quality portfolios still available.
With the Finnish economy having grown strongly in the past years and offering a further healthy perspective for 2008, an attractive and busy investment climate on the Finnish real estate market is expected to remain.
