Construction Cartel Creates Costly Risks

Up until a few years ago buying apartment in Helsinki was relatively easy and safe. You bought shares in the Housing Company that gave you the right to possession of a specific apartment. The Housing Company Law is relatively clear on who does what in the building. 

Every housing company has a board and they answer to the owners and occupants, (people who rent an apartment). The same legislation and building regulations state that a Housing Company is normally responsible for the cellar, the attic, the stairways, the lifts, the water and sewage pipes, the electricity lines, the outside of the building, the windows, the roof, and outside doors and the basic stuff like garden, garages, central heating, toilets and taps, etc.

The owners are responsible for the rest, which basically means everything else inside their apartment. Owners must ensure that they are properly insured and they must behave responsibly.

The owners are also expected to elect the board who are responsible for planning and implementing all maintenance and renovations once decided upon at the Annual General Meeting.  The costs of the maintenance and renovations are always hotly debated but most boards manage well.

Now things have started to change with “Land Rental Agreements”, a nasty new solution that the Construction Cartel and banks just love! 

Back in the old days, the Construction Companies just purchased the land with money borrowed from a bank and established a Housing Company that they fully owned. The Housing Company then took over the debt and build the apartment block, selling down ownership to the new owners of the apartments. This meant that the Housing Company owned the land on which the building was built and the apartment owners jointly owned the Housing Company.

Now the big Construction Companies did not like to having to carry the debt when buying the land. Building a block of apartments can take years and the cost of carrying the debt is not cheap. Their solution was to get investors and investment funds interested  to buy the land and leasing it out for 50 years to the Housing Companies at an ever increasing rent based on some inflation indexes. Naturally the indexes are designed to never fall…

Under such arrangements apartment owners must pay a monthly rent from now until eternity to the investment fund, or they can redeem their part ownership of the land for a hefty purchase fee which gives the investment fund a guaranteed return, again indexed on an inflation index that can never fall.

That is great business for the investment fund, banks and Construction Companies, but the owners of the apartments are locked into a Faustian promise from which there is no easy way out. It is an expensive arrangement about which many apartment owners fail to understand until it is too late. 

Not only is such an arrangement expensive but there is an additional risk. If more than a few owners stop paying the monthly fees because of unemployment, divorce or some other calamity, then their defaulted liabilities soon become the Housing Company’s headache and that means the remaining owners have to pay legal fees and other possible costs to cover the shortfalls.

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