The effect of ground leases on house prices in Helsinki

Abstract

Houses are expensive illiquid long-lived assets traded in an imperfect market. One of the imperfections is knowledge about legal interests such as ground leases. Uncertainty surrounding the rights, interests, and long-term costs of owners of houses constructed on land leased from the government may affect house prices relative to houses built on fee simple land. This paper uses regression analysis of sales price of large sample of condominium transactions in Helsinki to examine the effect ground leases have on house sales. We find that condominiums constructed on leased lots sell at 4% discount relative to houses on freehold lots in the same market.

The effect of perpetual usufruct on single-family houses in Poznań

“…Some results of these studies are presented below. Tyvimaa et al (2015) basing on regression analysis of sales prices of condominium transactions (52.930 observations) in Helsinki examined the effect ground leases have on apartment prices. The study carried out that prices on condominiums constructed on leased plots are discounted at least 5% on average.…”

Land pricing upon the extension of leases in public leasehold systems

“…The same applies to land improvements within a context of uncertain agricultural lease conditions (Myyrä et al, 2007). Future lease adjustments may also result in uncertainty for buyers and lenders of ground-leased properties, thereby resulting in lower market values (Tyvimaa et al, 2015). The synergistic value is understood as the difference between the value realised at the highest and the best use and the value created due to the conditions of the lease.…”

“…As a result of this problem, the public leasehold system "as originally conceived in Israel and Canberra, has reached its end" (Benchetrit and Czamanski, 2004, p. 46). It has also generated fierce debates elsewhere (Tyvimaa et al, 2015;Ploeger and Bounjouh, 2017), such that many ground-rent adjustments end up in court (Mandell, 2002). Nevertheless, interest in public ground-lease models is undergoing a revival as a way of providing affordable housing that allows for a separation between the affordable price paid by the lessee and an enduring claim on full future land values by the public owner (Bourguignon, 2013;Löhr, 2017;Shamsuddin and Vale, 2017).…”

“…In a context in which public ground leases cover a substantial part of the homes of citizens, such political power could be substantial, as there is substantial pressure to keep taxes low. This situation could potentially result in practices in which the rents of public ground leases are set below what would be feasible in a context of private ground leases (Tyvimaa et al, 2015).…”

No-Bubble Condition: Model-Free Tests in Housing Markets

“…9 This contract structure is not unique to the U.K. and Singapore. The real estate literature has studied the pricing of leasehold and freehold contracts in a variety of settings and countries (e.g., Capozza and Sick (1991), Wong, Chau, Yiu, and Yu (2008), Iwata andYamaga (2009), Tyvimaa, Gibler, andZahirovic-Herbert (2014), Bracke, Pinchbeck, and Wyatt (2014), Gautier and van Vuuren (2014)). None of these papers focused on the implications for studying bubbles.…”