Transfer tax change: threat or opportunity?

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12 October. day in 2023 will remain in the history books. On that date, the Finnish government proposed changes to the asset transfer tax. The surprising thing is that the tax is being lowered, not raised!

The transfer tax on securities will be reduced from 1.6% to 1.5% from the beginning of 2024. The percentages are 2.0 and 1.5 for housing shares and 4.0 and 3.0 for real estate. However, the biggest headlines in the news have been about the complete abolition of the exemption from paying transfer tax for first-time buyers.

The change will have a significant impact on the housing market. This is expected to boost the housing market. The amendment is not expected to have a negative impact on the months preceding the entry into force of the Act, as it will apply retroactively to housing transactions made on or after 12 October 2023.

This is a good start on the road to full abolition of the transfer tax. In particular, it has been seen as a harmful tax on house purchases, which raises the cost of changing house and thus negatively affects the willingness to move. This in turn has the effect that the threshold for moving to another place for work, for example, is slightly higher and that many Finns live in unnecessarily unsuitable housing in terms of size or location. Inefficient use of the housing stock is also partly due to the transfer tax. Further, international research shows that it reduces trading in the housing market. The research report, prepared by the National Institute for Economic Research (VATT) and the Helsinki City Hall, can be found here.

So the reform is a good thing, definitely. Overall, it will have a facilitating effect not only on the housing market, but also on housing construction. The construction cycle, on the other hand, affects a very wide and very large number of people in our society. So, great job!

What about first-time buyers?

However, the abolition of the tax exemption for first-time buyers may slightly raise the threshold for buying a first home. In 2022, a total of around 35,000 housing and real estate transactions were exempt from the first-time homebuyer tax. And it’s a big one: if a first-time homebuyer survives until the end of this year tax-free, they will have to pay a transfer tax of as much as €30,000.00 after the turn of the year (if they buy a million-dollar property). Various calculations have appeared since the news, so here’s another very purposeful one. However, in my own empirical experience, the most typical first home is an apartment in a block of flats. The average selling price of such a home in the whole of Finland in 2022 was €165.953,67. So the first-time buyer will have to pay transfer tax on this after the turn of the year of €2.489,31. However, that amount may not make the headlines.

It is generally a bit funny to use euro figures in such examples. When talking about buying a home, it is always important to keep things in perspective: if you needed to buy a carton of milk in a shop, would it affect your decision to buy if it cost 1.5% more? Quite a few people decide to buy their first home because it has been exempt from transfer tax. I find it hard to believe that anyone would not buy one either, if there is a demand and need for it. It is likely that the first-time buyer will at some point buy the next home, and will benefit from the renovation.

Even though the tax will be payable in the future on first-time buyers, the reform is still excellent and welcome. Especially as the public has been touting some new form of compensation for first-time home buyers from next year.

Either way, if you are thinking of buying a home, and especially if it is your first, it is obviously worth doing so during the current year. So you save some money according to the price of the apartment. So we strongly argue that this is definitely an opportunity, not a threat.

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Forced to bang your brains out, ...

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One report

There are quite a lot of different documents involved in a housing transaction, ranging from a sales brochure to a floor plan to an audit report. All are necessary for the evaluation, but it is still possible to summarise the essentials in plain language in a single report. Good riddance to the legalese and welcome the core facts with one (1) single report!

Trade documents

Even if the deed of sale of a residential property is a free-form deed, it should still contain all the essential information. We will check that this is the case. We will also check all the annexes that go on the side of the deed, i.e. the entire bundle of documents. You can then breathe a little easier as you sign the deed to your new home.

Negotiated bidding

We are here to help you negotiate your offer. We tell you what to look out for, what to ask the seller/agent and how to interpret the answers. And what conclusions can be drawn from the situation

Making a takeover bid

There is more to a takeover bid than just the price offered. We will help you to identify critical issues and check that all the agreed issues are properly recorded in the offer. And only the agreed things. So that you can sign it with confidence.

Sales price

And by that we mean the final price. We also take into account any company debt and the plot share. We compare the price to other comparable realised transaction prices in the area, not to asking prices. Apartments are always individual, and their equipment and condition vary greatly. However, we will find out if the price area is reasonable and acceptable.

Level of care

We estimate the level of the management fee charged by the company compared to other comparable housing companies in the area. We also look at whether the level has been right for the costs and whether there are clear upward pressures.

Zoning of the area

We’ll find out if there are any zoning changes afoot, or if that sea view you bought at great cost is about to disappear behind a new tower block in a year’s time. Or whether there are some less radical things happening around the place you are considering.

Management of the housing company

We look at how the management of the company has performed, including both the management and the board. Has the management been concerned only with making savings at every point or with keeping the company in good shape and maintaining or even increasing its value? 

Future renovation projects

We assess what kind of renovation projects are expected in the near future and the timeframe in which they can be expected to take place.  We might also throw in some guesses as to the expected costs!

Repair history

We look at when and what measures have been taken in the company and mirror them against the technical lifetime of each item. For example, we use the definitions of the Finnish Building Information Foundation RTS and the Central Association of Plumbing and Heating. This allows us to estimate whether the company has a repair debt.

Housing company finances

We carefully read through the company’s balance sheet and annual report, calculate the company’s indebtedness, liquidity and assess the overall financial situation. We compile our findings into a plain-language report that gives you an overview of the company’s situation.