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Rental apartment building for senior citizens as an investment object in Finland

Tanja Tyvimaa, Tampere University of Technology

Karen Gibler, Georgia State University

European Real Estate Society, June 2009

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Question

Is investing in apartments for seniors a better investment for developers/owners in Tampere than all-age apartments?

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What is a senior house? Independent living Restricted to residents 55+ Accessible design Common use area Located near public

services

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Finnish rental housing market 30% households are renters Most are in blocks of flats May own land or ground lease

from government 50% units built with state

subsidized loan for tenants with limited wealth

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Finnish senior rental housing market Unknown number Most are in blocks of flats Most are owned by

non-profits Charge market rents

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Tampere rental housing market 47,538 rental apartments Studio to 5-bedroom Few amenities Month-to-month leases Average monthly

rent 9.78€ psm

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Tampere senior rental housing market 1,914 rental apartments in 2008 Estimated new construction:

– 40 in 2009– 310 in 2010– 268 in 2011

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Case Study - VVO

Largest national housing provider 38,000 units 900 senior apartments

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Cases: 3 Senior Houses

6-8 km from city center 29-32 apartments (total 93) Average size 48.2 - 51.0 sqm Year of completion:

1999/2003/2003

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Cases: 3 Ordinary Rental Apartment Buildings

3.5-6.5 km from city center 28-44 apartments (total

99) Average size 51.0-57.0

sqm Year of completion:

2003/2004/2004

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Data for 2005 - 2008

Average rent €/sqm/mnth Average size sqm Operation cost €/sqm/mnth

– heat, water, electricity and cleaning for common areas, maintenance and waste management

Investment cost €/sqm– construction costs, construction financing costs,

developing costs, first-time marketing, permit fees, copying and municipal engineering fees

Number of turnovers Turnover costs € Vacancy loss €

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Results (All the data converted to monthly revenue and expense per sqm)

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Conclusions

The most basic level of senior house is currently generating a similar return before capital costs when compared to an ordinary rental apartment building.

Vacancy losses in senior houses are high despite the low turnover rate. This appears to be the area in which senior house owners have the greatest potential for increasing the rate of return.

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Thank you!