Getting nervous about housing funds is not worth it, says the economist and starts to list the reasons

Housing funds running into difficulties will not plunge the Finnish housing market into a crisis, but the effect will be very limited. This is what the chief economist estimates Juhana Brotherus About Finnish Entrepreneurs.

“The public challenges of housing funds can cause a momentary shock of confidence and create uncertainty in households thinking about housing transactions. Otherwise, the impact on the housing market will remain limited,” says Brotherus.

The difficulties of the funds became a topic of conversation when HS said on Wednesday OP unexpectedly closed two of his real estate funds.

On social media forums, the worst speculators are already painting horror pictures of how the housing masses owned by the funds pouring into the market would collapse the prices. However, this is unnecessary scaremongering and not a real danger.

Brother reminds that even though the housing fund closed by OP is the largest in Finland, the number of apartments owned by it and other housing funds is only counted in the thousands.

Their share of Finland’s housing stock or rental apartments is therefore small. For example, the OP Vuokratuotto fund has around 5,400 apartments in its portfolio.

This means that even if the funds’ apartments come up for sale at some point, they will not mess up the housing market, according to Brotherus.

“I don’t think that this would cause, for example, a drop in the prices of small apartments.”

He considers it likely that the funds will have to sell their apartments at some point in order to handle the redemptions. He thinks it makes sense that the apartments were not put up for sale now at a reduced price in a forced situation, but rather the fund was closed.

Housing sales According to Brotherus, the price effect would also be reduced by the fact that the apartments would probably be sold in bundles to large real estate investors. In other words, thousands of studio apartments in Helsinki, for example, would not suddenly hit the market for sale one by one.

These big real estate investors are foreign giant funds that have been buying more and more apartments in Finland in recent years. Examples include the Danish Nrep and the Swedish Slättö.

They are funds intended for professional real estate investors. They differ from open housing and real estate funds aimed at consumers who are now in trouble in that they are basically closed. In them, the investment period can be, for example, ten years, and if necessary it can be extended if the market situation is weak.

This means that they cannot have the same redemption wave. They are still able to buy apartments or build them.

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“Yes, this can take away from one generation of investors the confidence that housing funds are liquid and the risks associated with them are limited.”

Major according to Brotherus, the effect on the housing market can be seen through new construction, which is not getting the desired stimulus injection.

International giant funds do not necessarily need to build new apartments in Finland. Instead, they can increase their investments by buying large bundles of existing apartments from Finnish funds. The tenants are also ready.

“This can slow down the recovery of housing construction, or at least not make it easier,” Brotherus estimates.

In recent years, housing construction in Finland has been particularly attractive to investors.

Housing market the funds’ difficulties have a greater impact on the funds themselves, Brotherus estimates.

“Yes, this can take away from one generation of investors the confidence that housing funds are liquid and the risks associated with them are limited.”

According to Brotherus, ordinary small investors have not necessarily fully understood the risks associated with housing funds, even though the brochures tell about them.

“Not everyone necessarily understands how long-lasting the closure of the fund can become at worst. This will not necessarily be resolved in a few months,” says Brotherus.

He reminds consumers of the risks associated with asset classes that are illiquid. This means investments that cannot be quickly converted into cash. In addition to apartments, these include, for example, other properties, plots of land and forests.

“The fact that such asset classes are put into funds that are open every banking day does not make them liquid,” Brotherus emphasizes.

Every investor should understand this risk.