Paying in cash a new trump card in house-buying

Low interest rates and demand outrunning supply work in favour of cash buyers

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Paying in cash has become the latest trump card in buying homes and apartments.
      When the number of buyers exceeds the number of available properties, the method of payment also becomes an issue - in addition to the price.
      Cash transactions have steadily increased in popularity since the autumn, especially when it comes to buying small apartments.
     
A buyer who is willing to pay the entire purchase price in one go is such an attractive alternative that the seller may opt for this instead of going for the highest bidder.
      “From the seller’s point of view, the option where he gets the money immediately seems safest. I know many cases where this was the deciding factor”, says sales director Anne Seppänen of the Huoneistokeskus real estate agency.
      Despite its name, cash transaction does not mean that the buyer would have the entire ticket's worth of money on his bank account. A portion of the purchase price - and in some cases the entire amount - consists of borrowed capital.
     
When there are buyers about with cash to put on the table without delay, also those buyers with less money on their bank accounts are tempted to enter the race.
      “Many house buyers now take out a temporary bridging loan in order to be able to pay the entire asking price at once”, explains sales negotiator Matti Hannila of the Kiinteistömaailma real estate agency.
      Most of those who opt for temporary loans have already sold their previous property but have not yet received the selling price in its entirety.
      According to Hannila, in addition to the present supply-demand ratio also the low interest level has caused paying in cash to become more and more common.
      “The interest rates are currently so low that the temporary loans do not generate undue additional cost burdens”, Hannila continues.
     
First-time buyers,on the other hand, do not lose exorbitant sums of money - thanks to the low interest level - even if they raise the entire loan at the moment of transaction, while continuing to live in rented accommodation.
      “The banks recommend first-time buyers to pay the entire purchase price in one go. This provides the acquired loan with a guarantee”, Seppänen says.
      In a cash transaction, the property’s proprietary rights are transferred to the buyer immediately, even if the seller continues to live in the property.
      Often the rights of occupancy and control of the flat remain with the seller, until the date of handing over.
      A cash transaction is considered the safest form of purchasing property. The seller gets the money, and the buyer the residence’s shares, in other words the proprietary rights to it.
      The buyer still has to be vigilant to make sure the sales contract states when the property is to be handed over.
      To ensure that the property will change hands on the agreed date, the sales contract should also include a sufficiently large fine for the seller, should he fail to comply with the date.
      In addition to the fine, the buyer should also agree with the seller on who will pick up the tab, should something happen to the house or apartment - for example if there is water damage or a fire - before the handing-over date.
     
According to Seppänen, property buyers and sellers are usually very particular when it comes to insurance matters, but buyers of residential flats often rely too much on the housing corporation’s liability for damages.
      Many cash buyers also fail to realise that they already own the flat, even though the previous owner is still living in it.
      “The owner always has the responsibility of his property, so it would make sense for the buyer to have a word with the insurer.”
      Though paying in cash has increased its popularity, it is not the only way for one to get to own one’s dream property, Hannila and Seppänen affirm.
      “A property transaction still comes down to three basic issues: the price, the speed with which the property becomes vacant, and the payment arrangements”, Hannila summarises.


Previously in HS International Edition:
  Real estate companies believe in moderate growth in 2010 (7.4.2010)
  Minister of Housing warns of possible overheating in housing market (23.2.2010)
  Housing prices rising in spite of recession (1.2.2010)

See also:
  Demand for housing loans has picked up significantly (5.1.2010)

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