Over- and undervalued property markets – also Finland and the Netherlands

I have written and linked about the Dutch and Finnish real estate markets. In particular in the Netherlands the (long-blown) bubble is deflating, but the possible Finnish real estate bubble is not yet deflating. This link by Credit Writedowns shows a graph which is interesting in many ways. I will only focus on Finland and the Netherlands, but as you can see from the graph, in Finland property is vastly overvalues in terms of price-to-rent, while in the Netherlands it is overvalued mostly (or more) in terms of price-to-income. The latter is no surprise given the loose policy of banks in the 90s to sell mortgages that demanded hardly any equity or cash and were several times the yearly income. From this chart it could be argued that in particular Belgium and France would be in for a rough ride, if somewhere banks start to wobble again.


As for Finland – in Finland there is a heavy cultural bias against renting, seeing that owning is an investment for the future, if not straightaway a part of your heritage. Also that money going into rents is ‘wasted’ – your house doesn’t get any nicer by it. On the other hand, Finnish rent rules stipulate quite a lot of things the landlord has to do to keep the condition of the rented property well.


Although Belgium and France are also rather overvalued on this indicator, it seems that a unifying aspect of these countries is that they have to a fairly large extent some kind of social housing system, where e.g. the city/community is the formal landlord (i.e. the property is owned by the city).


I am not sure if this is a correct way of seeing it but suppose there comes another credit crunch for governments, and for Belgium and France this is not so unlikely, there might be pressure to sell government/community property. The likely result (based on this graph at least) would be that the prices of those ‘new’ private properties soars (for a while), and thus making it very difficult for many people to keep a home.


Somehow this chart is quite worrying, even beyond the issue of non-deflated bubbles.


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