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The year 2025 for real estate investors – what happened in the market and what does it mean for investors?

The year 2025 has been historic in many ways for the Finnish housing market and real estate investment. Falling interest rates, rent differentiation, a slump in new construction, a shortage of rental housing in certain areas, oversupply in the capital region, and a significant change in the housing allowance system have fundamentally reshaped the market. At the same time, the Building Act was reformed, the tax environment remained unchanged, and the housing market recovered at different rates in different parts of the country. The overall impact of these phenomena has created a market that is more segmented, more challenging, and more promising than before—if investors understand regional differences and market cycles.

This article provides an overview of the changes that will take place in 2025 from the perspective of a real estate investor.

Lower interest rates ease the burden on debt-driven investors – but there will be no return to risk-free times

Interest rate developments are one of the most important themes for 2025. The most common reference rate for mortgages in Finland—the 12-month Euribor—has fallen significantly during the spring of 2025. Yle reported on several days when Euribor experienced sharp declines as the markets priced in future ECB interest rate cuts [1]. At the same time, many banks updated their margins and expectations, and consumers cautiously returned to the mortgage market.

According to analyses by the Bank of Finland, the stress caused by rising interest rates has eased, and mortgage holders have coped with interest rate risk better than expected [2]. This is partly due to interest rate hedging, which a large proportion of households took out in 2022–2023 and which is now having an impact in the form of reduced cash flow pressure.

Demand has also strengthened in the loan market: in January 2025, more new mortgages were taken out than in the corresponding period in the previous two years [3]. At the beginning of the year, the loan stock amounted to EUR 105.6 billion, of which EUR 8.8 billion were investment mortgages [4]. Of these, approximately 96% were tied to Euribor rates, and 76% were tied to 12-month Euribor [4].

Although lower interest rates have eased the situation for investors, there are no signs that we are returning to zero interest rates. Analyses predict that Euribor will settle between 2 and 3 percent in the coming years [5]. This means that investments must continue to be stress tested at higher interest rates, and the use of leverage must be carefully considered. The market is no longer revolving around cheap debt as it did in 2015–2021, but return requirements have changed.

Exceptional division in the rental housing market – first decline in the capital region, increase elsewhere

The development of rents in 2025 is historic. According to Statistics Finland's Q2/2025, privately financed rents in the capital region fell by 0.3% from a year ago — for the first time in the history of measurements [6]. Yle highlighted observations about investors whose apartments have been vacant for months, and the scope for rent increases has practically disappeared [7].

The trend in Q1/2025 was already predictive: rents across the country rose by 0.9%, but growth in the capital region stalled at 0.1%, while elsewhere in Finland growth was 1.4% [8]. The rise in rents did not stop nationwide, but only in the largest markets, where oversupply and weakened demand weighed on rents.

There are significant regional differences:

The situation in Vaasa is a striking example of market duality. According to a report by Yle, Vaasa is growing rapidly, and construction is not keeping pace, which has led to a local shortage of rental housing [9]. At the same time, there is such a significant oversupply of rental apartments in the capital region that benefits offered to tenants (e.g., rent reductions, free first months) have become commonplace.

For investors, this means that rental income in 2025 will vary significantly from location to location. A studio apartment in Helsinki is no longer a safe “set and forget” investment, while even a small increase in demand in growth centers will raise occupancy rates and rent levels.

Housing prices and sales volumes: decline, but also signs of recovery

Prices for older condominiums fell by approximately 1.4% year-on-year across the country in February 2025, but the upturn in sales has been surprisingly strong [10]. The fall in interest rates has stimulated demand, particularly for small apartments and family homes.

Regionally, the development has been as follows:

The situation in the new housing market is interesting. The stock of unsold new properties, which was a factor slowing down the market in 2023–2024, has decreased rapidly, and the problem is expected to disappear during 2025 [13]. This may lead to a shortage of new housing supply at the same time as demand picks up—a recipe for price pressure in the coming years.

More building permits were applied for in January–March 2025 than before, but the volume of construction remains low due to financing and cost pressures [14]. The Government's analysis estimates that the level of construction in Finland will remain weak until 2026, falling well below the level required by population growth [15].

This imbalance between construction and demand will create potential for price and rent increases in the mid-term, between 2025 and 2027, particularly in growing centers.

New construction law changes the framework conditions for construction and real estate development

The Building Act, which came into force on January 1, 2025, replaced the previous Land Use and Building Act and brought with it a number of changes aimed at streamlining permit processes, improving the quality of buildings, and reducing emissions [16]. The Act includes, among other things, carbon footprint calculations, the promotion of the circular economy, and new energy efficiency requirements [17].

The key elements of the Construction Act for investors are:

The effects are gradually becoming apparent in the market, but construction companies have already adjusted their planning and investment schedules in accordance with the conditions set by the law.

Changes to the social welfare system are shaping demand for rental housing

Social security reforms have had a significant impact on demand for rental housing. The tightening of general housing benefits that came into effect in April 2024 weakened the ability of low-income households to pay their rent, prompting many to move to more affordable housing [18].

However, the most significant change in 2025 will affect students. From August 1, 2025, the majority of students will transition from general housing allowance to student financial aid housing supplement [19]. The new support model provides less support for many students and is only paid for months of study. Aalto University and SYL have emphasized that students' ability to pay will weaken and demand for affordable housing will increase [20][21].

This is particularly evident in student cities:

For investors, this sets new requirements in terms of tenant profile, rent pricing, and apartment size.

Taxation remains unchanged – but emphasizes the importance of the correct purchase price

The capital gains tax rates for 2025 are:

Rental income is capital income, and normal deductions (maintenance charges, interest, repair costs, etc.) can be made from it [23]. With taxation remaining unchanged, the return on investment continues to be generated on a market basis: from the purchase price, debt leverage, and rent level.

Yle has also highlighted the increase in the number of problem tenants in some areas and upcoming changes to the Room Rental Act, which may make it easier to terminate leases in problematic situations [24]. These factors emphasize the importance of tenant selection, especially in markets where falling rents are encouraging tenants to move more frequently than before.

Structure of the rental housing stock: the role of the ARA market and market segmentation

State-subsidized rental housing is a significant part of the Finnish rental housing market. There are approximately 404,000 ARA-subsidized apartments in Finland, of which 241,000 are ordinary rental apartments and 36% are located in the capital region [25].

Varke (formerly the State Housing Fund) reports in its 2025 review:

This supports the observation that the Finnish rental housing market in 2025 will no longer be a unified whole, but rather a fragmented, regionally differentiated market.

Summary: What should real estate investors understand about 2025?

The year 2025 clearly shows that real estate investment is no longer a passive, automatic form of investment. The market has become highly differentiated, and investor returns depend more than ever on the choices made:

Investors' success in 2025–2026 will be based on their ability to interpret market duality and act according to local strengths. Those who choose their investments analytically and do not assume that the patterns of previous years will repeat themselves can still find excellent opportunities in the market.

The year 2025 has been a turning point for the Finnish housing market. Falling interest rates, historically exceptional developments in rents, reforms to student housing subsidies, the entry into force of the Construction Act, and regional differences in housing sales have shaped the market in ways not seen in decades. For investors, the year has offered both new risks and opportunities, and the market has become more divided than ever – from oversupply in the capital region to a shortage of rental housing in growth centers. This review summarizes the most significant events of 2025 and their impact from the perspective of a real estate investor.

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