A short story of how we bought our apartment

I and my wife bought our first home together in Helsinki last year in August. I had previously been part of buying two other apartments but it was in my hometown of Vaasa where the situation is quite different from the overheated market of Helsinki. We had planned to move for close to a year and we were prepared with the help of the ASP system, but the funny thing is that when we finally bought it we had to do it in less than three days.

We set up a few ground rules for what kind of apartment we were interested in.

• Remember the mantra: location, location, location. The house needs to own the ground it is built on, since nothing else really matters. In the coming years the long term ground rental costs will go up and this is a fact that will follow you as long as you own the property. The house might in a worst case scenario even burn to the ground. The building itself has only part of the value and in order to keep it’s value it needs to be constantly maintained.
• The apartment should have been built before the 1940’s. This was mostly due to personal taste but old building have a different structure than the often hastily built houses built after 1945. Older houses are also in our opinion more architecturally interesting and are better planned, especially when it comes to smaller apartments like ours.
• All larger renovations need to have been done including pipes, facade and other costlier updates. The house should preferably have more than 50 shareholders making the burden of coming renovations easier. Our house has over 100. Preferably only a few of the apartments in the house should be owned by the city. It took half an hour on the phone to find the person to talk to about it but we succeeded and five of our apartments are owned by Helsinki.
• Internally, the apartment should not have been renovated during the last  ten years, leaving us with the opportunity to do it ourselves without having to pay extra for someone else’s bad taste.
• The house should have a low per square meter compensation at around 2,5 €. This is essential since it’s a solid cost that will come back to haunt you every month as long as you own the apartment and it is likely to rise. It will also eat into your profits if you decide to rent it out to someone else.
• The existing house stock holders should not have the right to amortize the apartment if we make a bid on it. This stings and I’ve seen how devastating it is for couples who have made a bid and see it go through just to see it be taken away by someone with too much loose cash. You will also loose two weeks while waiting for the resolution.
• If we see an apartment we like, we will bid on it, full price to avoid a bidding war.

During the course of three days we saw a number of different apartments but only one of them seemed to stand out. It was a 43 sqm two room apartment that matched all our criteria. The woman who was selling the apartment was the owner and it is always nicer to deal with someone who really personally knows what they are selling. It also turned out to have a low square meter price that seemed to be picked straight from the latest report on the average selling price. As this was a single room apartment it ought to have been about 20 % higher. We made a bid and she took it. A week later, after speaking to our bank, we owned the apartment.

There is much talk about the housing bubble in the Nordic European countries since there has been a constant rise in prices for over 15 years now. This is mainly due to structural problems in housing politics, which has led to a imbalance in supply and demand. In my opinion we will only see a substantial decline if there is a new recession, an increase in unemployment, a property selloff by investors, an increase in housing construction, a change in the taxation rules and the interest rates shoot up to 6-7 percent. To be honest we didn’t really think about the tax return or the low interest  rates when buying this flat. We figured like many others that buying the apartment would be cheaper in the long run than renting. With the low rate of interest we would essentially be paying more rent than paying installments on the loan for a brief period of time and then we would have a state protected interest roof. We are well aware that there has not been a stable development in the housing sector and we are well aware that the prices might start declining as early as in the summer of 2011 but we are content with a zero gain game. The main thing for us is having a solid small place to live.

In my opinion a stable place to live is a basic right and housing should never be used for speculation. But since this is the case, you just have to prepare well. I hope these pieces of advice will help you in your own quest.

Do you agree with me? What are your thoughts on buying a property?