Talk of housing company bankruptcies has become more and more frequent. The media is full of stories about payment difficulties and bankruptcy threats. Many home buyers are asking: should I be worried?
The situation has changed. According to the Association of Property Management Companies, last year more than a dozen housing companies were in a state of bankruptcy, compared with one or two a year in the past. The numbers are still small, but the trend is clear.
Old companies suffer from poor management
A study by Sara Nissinen, Master of Laws, reveals a clear division. In new housing companies, bankruptcy is usually caused by faults during construction or payment difficulties on the part of the developer. In older companies, the causes are often homemade.
Repairs have been postponed year after year. The company’s finances have been badly managed. Danske Bank’s Ville Roihu says the bank is calculating the risks and the value of the collateral. If the value of the housing company does not rise to a sufficient level even after the renovation, the loan may not be available.
When the time to tackle mandatory repairs comes too late, the situation can be hopeless.
Arrears pass the buck to others
Another significant risk is unpaid consideration. If there are shareholders in a housing company who do not pay any of their fees, the responsibility falls on others. The company’s finances suffer and the result can be a heavy upward pressure on others’ contributions.
The situation is particularly difficult if the defaulting shareholder owns commercial premises. In many housing companies, these are subject to higher charges than apartments.
Danske Bank’s Roihu says he has seen situations where a former shareholder has sold shares to an insolvent buyer. The consequences are far-reaching.
Specific risk: one owner, many dwellings
What happens if one investor-owner owns several properties in the same company and gets into payment difficulties? This is a particularly dangerous situation.
One shareholder’s debt can become large if he or she owns, for example, three apartments in a large company. Other shareholders may have to pay a significant amount.
In the worst case, the investor-owner could go bankrupt. If a limited company goes bankrupt, the housing company is on the same footing as other creditors. It is therefore advisable for the housing company to take possession of the apartments as quickly as possible.
It pays to recognise the warning signs
Tapio Tikkanen of Veromo Oy stresses that active monitoring can help to overcome the problems. Good financial management requires close monitoring, regardless of a company’s financial situation.
The first overdue payment must be reminded to the shareholder immediately. If problems persist, you may even have to take possession of the apartment.
According to a survey by the Real Estate Federation, it has become more difficult for housing companies to obtain loans. Two years ago, just over 5% of those who applied for a loan encountered problems. This year the figure was almost eight per cent.
Pre-screening is more important than ever
All these factors underline one thing: careful due diligence is even more important when buying a home.
Auditing a housing company’s finances is no longer just a formality. The number of overdue fees, future renovations, the amount of debt and the ownership structure of the company tell you a lot about the risk you are taking.
Don’t just settle for a property manager’s certificate. Ask specific questions. Find out if there are any large investors in the company and what their payment behaviour has been.
Independent expert advice should be used. It will pay for itself if it helps you avoid buying a problematic item.
what are you finally buying?
Not a flat, but shares in a limited liability housing company. Therefore, it does not matter what kind of company it is. Before making a decision, make sure that the company you are considering is financially sound. And that it will be in good shape in the future.
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