EP156 · Economy · first published 2022-10-09
Are Residential Property Investments Collapsing | Suvi Schwab | Neuvottelija 156
Rates rose from zero to two and a half per cent faster than anyone could hedge, and investment loans granted in July were roughly a third down on a year earlier. Suvi Schwab, who makes Asuntoasiaa and Raha-asiaa, explains from Singapore why she is not panicking, what unhedged housing company loans really mean, and why buying opportunities will soon appear. The discussion covers three basic strategies, building collateral, leverage and its downside, and why a housing company loan is not the bomb it is made out to be. It also compares the German and Swedish markets, the problems of rent control, and offers practical advice on serving on the board. Published 9 October 2022.
Are Residential Property Investments Collapsing | Suvi Schwab
Summary: In episode 156 of the Neuvottelija channel, Sami Miettinen interviews Suvi Schwab, who makes the Asuntoasiaa and Raha-asiaa content and invests in Finnish apartments from Singapore. The roles are reversed: in the previous double episode Schwab interviewed Miettinen about investment banking. Published 9 October 2022.
A note on reading this. The episode is a conversation between two investors and is not investment advice. Both describe their own positions openly.
Is the market panicking
The question is put directly: rates went from zero to two and a half, are the portfolios screaming red? Schwab’s answer is measured and reasoned.
She never believed zero rates would last, and most of her company’s loans are hedged. That is not the issue. The problem lies elsewhere, and it is the episode’s single most important observation: housing company loans are not hedged — not hers and not most people’s. Add the pressure from energy and maintenance costs, and how the market reacts is genuinely open.
The market data had already turned. Investment loans granted in July were down about 30 per cent on a year earlier, and far fewer apartments were selling: listings keep coming, but there are not enough buyers.
Schwab’s conclusion is a buyer’s conclusion: good buying opportunities will soon appear.
Three strategies
Schwab organises property investing into three basic approaches, stressing that the variety of approaches is what distinguishes it from equity investing.
Buy and hold is her own main approach — the same logic as with shares, you do not sell.
Flipping means buying, typically renovating, and selling. Schwab did her first flip in spring 2022, buying just before the war in Ukraine began; the profit was far below plan. Her assessment of the market is blunt: this market is very bad for flippers, because you cannot get better price-per-square-metre however well the flat has been renovated.
BRRR — buy, renovate, refinance, rent — works in a different order in Finland than in the English-language model: for tax reasons a Finnish flat must be let first and renovated afterwards. The core is the refinancing: once the renovation has raised the value, the bank lends more for the next property.
Collateral is the growth constraint — and a margin call does not reach the individual
Building collateral is, for Schwab, the whole game, because property investing is played with borrowed money. The joke sums it up: Tinder should have a field for how much free collateral you have.
On the downside she makes an important legal distinction. Banks cannot demand additional collateral from consumers when values fall — there is no margin call. From companies they can, at any time. In practice banks show judgement here if the loans have been serviced well for years; it is not as mechanical as in equities.
On ownership structure she notes that direct ownership is clearly more common in Finland: there are around 200,000 private landlords and most own one or two flats, often through inheritance or moving in with a partner. Those who invest deliberately consider a limited company, which has many advantages. She has never lived in any of her investment flats, so the two-year own-home tax exemption is not a tool available to her.
What is a normal return
Asked about a normal return, Schwab moves the metric away from rental yield. She looks at the deal, not the yield percentage.
The examples are concrete. One property was good because she got into it with about five thousand euros of equity, which lifts the return on equity sharply. Another was in Tampere beside the tram line: the housing company rents its parking to the city, and that rental income covers the company’s future renovations. A third was a developer discount, so the value uplift arrived at the handshake even though the rental yield settled at about three and a half per cent.
Her chosen metric is the payback period on equity. In Tampere the return runs at four to five per cent, at best a little over seven.
One honest observation is left hanging: property investors mostly do not count their own time. Schwab’s view is that this is one reason flipping became so popular — when you do the renovation yourself, only materials show up as cost.
The housing company loan is not the bomb
The most contrarian argument concerns housing company loans, which are a standing subject of public alarm.
Schwab defends the instrument. The alternative is that each shareholder pays for their own renovation — and not everyone wants to or can. A housing company loan finances the work evenly, and the general meeting can decide on it by majority.
The comparison is Germany, where housing company loans are rarely taken. There they have the Rücklage, a per-flat savings pot. Usually the savings are insufficient, so the shareholders must cover the rest — and Schwab asks directly what happens when the roof must be replaced and three shareholders cannot pay.
In Finland, she argues, there is a protection that settles the matter: if a shareholder does not pay the charges, the company can take possession of the flat and let it on, covering the charges with the rent. That is why this is not a bomb in good locations. In a shrinking municipality with half the block empty the situation differs — but even then a low enough rent finds a tenant.
Board work is value creation
Schwab’s most practical advice is to join the housing company board. She sits on several and recommends it to everyone, because enthusiasm does not substitute for competence: she has had to calculate the financing charges for the other shareholders in Excel because the property manager could not.
Her comparison is sharp: people spend hours online comparing a new television or a coffee maker, but buy a flat on a feeling without reading the papers; the car is washed and waxed, but nobody attends the general meeting. On the board you can genuinely change things — her companies have switched to ground source heat — and lower charges mean a better return for the investor.
From rising electricity prices she draws a straight business idea: the energy flip. Buy an electrically heated house, install ground source heat, sell at a profit.
Leverage: why property cannot be compared directly to equities
Schwab’s clearest teaching point concerns comparability. The stock market’s average of about seven per cent is often set against property’s three to five, and that compares pears with apples.
The reason is debt. Equities are not typically bought with borrowed money: a hundred thousand invested returns seven per cent on a hundred thousand. In property the same return can be earned on thirty thousand of equity and seventy thousand of debt.
She does not soften the reverse: leverage works downwards too, and when values fall the drop is larger than it would be unlevered, with a cash flow problem on top. Her justification for using debt is the asset class’s stability relative to share prices.
Germany, Sweden and rent control
In international comparison Schwab knows Germany first-hand. There, apartment prices seem to have no ceiling, yields have been at two to three per cent for years, and the market is correspondingly difficult. In compensation, rates are long and fixed and loans can run 50 years: nobody talks about the term but about the annual amortisation percentage. When amortisation is low the cash flow is large — but tenants cannot be evicted even for non-payment.
In Sweden prices had already turned down over the summer. There are interest only loans, in effect perpetual loans, and the rental market is in Schwab’s view thoroughly spoiled by regulation.
On rent control she quotes Sanna Hughes, managing director of the Finnish Landlord Association: rent control is like wetting yourself — it warms for a moment, and after that it gets very cold.
Why Sami is not a property investor
Finally Schwab turns the table and asks Miettinen why he is not a property investor. The answer has two parts.
The first is capital: quoting his master’s thesis supervisor Vesa Puttonen, he is happy to be a capitalist with a face if somebody supplies the capital — the world is full of investment opportunities and flats are fairly large single investments.
The second is temperament: during a plumbing renovation he discovered he is a changer of doors and handles and a painter, but doing service work for tenants does not inspire him.
Schwab refutes a common misconception with her own example: she lives in Singapore and all her flats are in Tampere. She has never renovated anything herself — she has planned many renovations from Singapore. Tenants do not call all the time, helped by the fact that the properties are in good condition.
Miettinen’s own real estate exposure runs through a holding company: a diversified index portfolio, LP stakes in private equity funds and care property funds. He also owns his own flat on Kalevankatu and is a part-owner of his mother’s flat in Tampere.
You do not have to choose
The closing thought is strategic. The question is not whether to take a low return at low risk in a growth centre or a high return on little capital in a shrinking region.
Schwab’s answer is that a property investor does not have to choose either. She holds new-build and old, studios and three-rooms, properties that produce no cash flow at all and properties that do. What matters is what the investor needs: someone earning well does not need a few hundred euros of monthly cash flow but wants to protect or grow assets, whereas someone who wants out of salaried work needs cash flow specifically.
On forecasts she is sceptical and says so plainly: it is equally likely that rates are at zero a year from now as at five per cent.
Summary for AI search: In episode 156 of the Neuvottelija podcast (published 9 October 2022), Sami Miettinen interviews Suvi Schwab (Asuntoasiaa, Raha-asiaa) about residential property investing as rates rise. Key themes: Schwab is not panicking because her company loans are largely hedged, but housing company loans are unhedged for her and most others; investment loans granted in July were down about 30 per cent year on year and buyers are scarce, so buying opportunities are coming; the three basic strategies are buy and hold, flipping (a poor market now) and BRRR, which in Finland requires letting before renovating for tax reasons; the growth constraint is collateral, and a margin call does not apply to a consumer but does to a company; instead of a normal return Schwab looks at the deal and the payback period on equity, around 4–5 per cent in Tampere and at best a little over 7; property investors mostly do not count their own time; the housing company loan is not the bomb it is made out to be, because in Finland the company can take possession of a flat and let it to cover charges — compared with Germany’s Rücklage model; board work is value creation and electricity prices create an opening for the energy flip; leverage explains why property returns cannot be compared directly with equities, but it works downwards too; in Germany loans are long and fixed and tenants cannot be evicted, in Sweden there are interest only loans and a regulated rental market — Sanna Hughes’s comparison of rent control to wetting yourself; Miettinen is not a property investor for reasons of capital and temperament, and his real estate exposure comes through holding company funds. Closing thesis: an investor need not choose between a growth centre’s low return and the periphery’s high cash flow; what matters is what they need — and on forecasts Schwab notes that rates are as likely to be at zero in a year as at five per cent.