Stable cash flows, local access to credit and a shortage of other attractive asset classes mean that the Nordic property market will deliver good risk-adjusted returns over the coming years. According to Newsec Property Outlook, properties with stable cash flows and a close link to domestic demand are expected to perform best, with Finnish high-quality residential and logistic properties standing out in particular.
"A period with a high global inclination to save and low investment demand, in combination with low utilization of capacity, will hold down both real interest rates and inflation during the next few years. This will benefit the capital-intensive property sector," says Newsec's Chief Economist Arvid Lindqvist.
Stably rising cash flows
The Nordic economies differ from much of the rest of the western world. Because the region will continue to grow in coming years, favorable conditions will be created for seeing increasing cash flows from high-quality properties in good locations.
Local access to credit
The fundamental changes that are currently happening on the global financial markets with reduced access to credit and high selectivity by the banks leading to high margins will have a negative effect on the credit-intensive property sector. However, the effects are expected to be less in the Nordic region than in the rest of Europe because of our current-account surpluses, our intact financial systems (except in Denmark) and the banks' minimal exposure to southern Europe.
Lack of investment alternatives
Low risk-adjusted returns on alternative investments such as government bonds and equities mean that the Nordic property market will be an attractive investment choice for both domestic and foreign investors who are looking for stable returns.
"Despite a weakening world economy, liquidity on the Nordic property market was good in 2011. The market turnover of 18 billion represented about 20% of the total European transaction volume. The segments that are expected to deliver the best risk-adjusted return on the Nordic property market over the next few years are residential and logistics properties in good locations in Helsinki," says Newsec's Chief Economist Arvid Lindqvist.