Saarijärvi housing association faces Finland’s first bankruptcy

A senior right-of-occupancy housing association in Saarijärvi faces bankruptcy, threatening to cost elderly residents a combined 800,000 euros in occupancy payments, Yle reports.

If the Saarijärvi region right-of-occupancy association becomes insolvent, residents of its Omatoimi senior housing building could lose the payments they made when acquiring their homes. The bankruptcy would reportedly be the first of its kind in Finland.

Right-of-occupancy payments are made when a resident acquires a right-of-occupancy home. They can amount to up to 15 per cent of the purchase price and should be returned, adjusted using the construction cost index, when the resident leaves the home.

According to Heikki Kauppinen, chair of the association’s board, the payment amounts to around 30,000 to 40,000 euros per apartment. The total value of the residents’ payments is approximately 800,000 euros after index adjustments.

Sami Turunen, head of the supervisory group at Varke, the Centre for State-Subsidised Housing Construction, said no state-supported right-of-occupancy association had previously gone bankrupt. Turunen said he was also unaware of any earlier bankruptcy among privately financed associations such as Saarijärvi’s. The Finnish Right-of-Occupancy Residents’ Association shares that assessment.

Rising interest rates caused financial problems

The privately financed Omatoimi senior housing building, an accessible wooden apartment building in central Saarijärvi, was completed in 2015. Its total cost was 4.1 million euros. Financing included 660,000 euros in right-of-occupancy payments, a 1.2 million euro grant from the former Slot Machine Association, and a 2.3 million euro loan from Municipal Finance guaranteed by the city of Saarijärvi.

The association says the main cause of its financial difficulties is the rise in interest rates after Russia invaded Ukraine. According to Kauppinen, annual loan servicing costs increased by 40,000 euros, forcing the association to raise maintenance charges.

The higher charges have prompted residents to move out. Five of the building’s 24 apartments are currently empty, and three more are becoming vacant. The average age of the residents is over 80.

The association has asked the city for help. The city government has proposed that the city council reject the request, which the council is due to consider. The association has proposed sharing capital costs between the association and the city.

Kauppinen described the request as risk management that could benefit both parties. The city has guaranteed the association’s loan, of which nearly two million euros remains. If the association goes bankrupt and the building is sold, he said, the city would recover little.

In a bankruptcy, the Finnish Funding Centre for Social Welfare and Health Organisations, formerly the Slot Machine Association, would also be a creditor seeking to recover more than one million euros in grants. Apartment prices in small towns have also fallen significantly since the building was constructed.

Kauppinen said the association’s finances needed to be stabilised quickly. “We need new residents, but they must have confidence that their right-of-occupancy payments will not be lost,” he said.