Blocks of flats in Suvela, Espoo, on 15 September 2023. Espoo is one of 24 Finnish municipalities to receive an upgraded housing credit rating from the Mortgage Society of Finland. With its new rating of AA-, the 300,000-resident municipality joined Helsinki and Tampere as the most highly rated municipalities in Finland. (Heikki Saukkomaa – Lehtikuva)


THE MORTGAGE SOCIETY of Finland (Hypo) on Friday published its assessment of the housing credit ratings of municipalities, revealing widening differences in the risks, crisis resilience and outlooks for municipal real estate markets.

Espoo joined Helsinki and Tampere as a municipality with the highest rating, AA-.

Espoo’s ranking was bumped up particularly as a result of its positive income and demographic development, having hit the 300,000-resident mark in 2022 and being on track to hit the 350,000-resident mark in 2040. Hypo said the city appears to be the second most popular destination for internal migrants after Tampere.

Its population also performed better in terms of health and income than those of Helsinki and Tampere, according to Hypo. The only question marks are related to the relatively high level of indebtedness given the high interest rate environment.

Oulu, Turku and Vantaa received an A rating from Hypo, along with a number of municipalities in the commuter belt around the capital region.

The credit rating was pegged up for a total of 24 municipalities and pegged down for 59 municipalities, while 210 municipalities saw no change in their rating. Downgrades were common especially from B to triple-C, leading to a slight up-tick in the number of municipalities with a rating starting with a C.

Hypo describes C-rated municipalities as the risk group in the real estate market. Such high-risk localities are found especially in Central Finland, Eastern Finland and Kainuu.

The ratings are based on factors such as solvency, collateral value, municipal economy, safety, migration flows and environment.

Hypo has also issued ratings for each post code in the capital region, Tampere and Turku. The highest triple-A rating was granted to many neighbourhoods at the centre of Helsinki, including for the first time Koskela, Kulosaari, Länsi-Pakila and Munkkivuori-Niemenmäki, to Haukilahti, Niittykumpu and Tapiola in Espoo, to the city centre, Kaleva and Länsi-Amuri in Tampere, and to the city centre, Kupittaa and Moikioinen-Pikisaari in Turku.

The common denominators for highly rated post codes include central location, good transport connections and residential development plans. Also districts with a high number of owner-occupied units stood out positively as the risk of bankruptcy has increased for investors and construction companies.

Malmi, a major district in north-eastern Helsinki, was upgraded from A to AA due to a plan to build 7,000 residential units by 2036, the re-development plans for the railway station and former airport area, and the light-rail connection between Malmi and Viikki.

Eira-Hernesaari and Kamppi-Ruoholahti, by contrast, were downgraded from AAA to AA partly due to concerns that higher interest rates could drive away real estate investors from the centrally located districts, Juho Keskinen, an economist at Hypo, stated to Helsingin Sanomat on Friday.

“If investors ended up in trouble, it’s possible that a lot of flats could come up for sale and the supply could increase in these districts,” he said.

Finnish consumers are also paying greater attention to energy efficiency.

“The city centre has its own benefits for energy efficiency, including the density of housing and ease of mobility, but in terms of energy performance certificates the districts have fewer energy-efficient properties,” said Keskinen.

Hypo highlighted that real estate markets can differ dramatically between districts even within vital municipalities.

Puotinharju and Tapulinkaupunki received the worst ratings in Helsinki, each falling from triple-B to double-B due to slower-than-average activity in the real estate market. The districts are also regarded as risky due to limited plans for new residential construction and lack of support from planned railway projects.

Petikko, a western district of Vantaa, received the lowest rating in the capital region, B. The rating was justified with sluggish real estate sales, weak employment situation and the high number of young residents moving away.

In Espoo, only two districts received lower ratings than A.

Hypo on Friday also reported that it expects the decline in house prices to moderate in the last few months of the year but remain sluggish due to high supply and demand restrictions. The housing-specialised credit institution also revised down its forecast for real estate prices due to the worsening economic outlook, saying it expects house prices to fall by 6 per cent in 2023 and rise by 1.5 per cent in 2024.

The prices are expected to return to an upward trajectory as a result of demand bottlenecks disappearing and the sharp drop in new construction projects affecting housing supply.

“First-time home buyers are presently in the luckiest position because the real prices of houses are at their lowest level since 2003,” wrote Hypo.

In the capital region, real estate prices are expected to fall by 7.5 per cent this year and rise by 2.5 per cent next year.

Aleksi Teivainen – HT