07/11/2019

National Security in Tighter Focus in Real Estate Deals Starting in 2020

Foreign buyers have purchased a great deal of real estate in Finland over the past few years. The high level of activity on the market caused legislators to consider whether properties near vital national installations could fall into the wrong hands. Several legislative reforms will enter into force at the start of 2020 to improve national security. These reforms include a permit requirement for non-EEA buyers.

Hybrid influencing, terrorism and other threats to national security are a common sight in news headlines, and Finland has not remained idle. The previous government of Prime Minister Juha Sipilä took the position that new threats require new kinds of preparedness. Sipilä’s government proposed more detailed legislation to regulate the purchase of properties that are significant to overall security.

Acts Restricting Real Estate Deals

As a foundation for new legislation, the Ministry of Defence published a report in 2017 on how vital societal installations could be secured. Legislative reforms were required to ensure that properties in close proximity to vital installations do not fall into the wrong hands.

The necessity of legislative reform was also supported by the significant increase in real estate purchases in Finland by foreign – particularly European – investors. Foreign investors see Finnish real estate as a good investment. An exception to this growth trend is the significant decline in Russian buyers.

Finnish Parliament passed national security reforms in 2019, and the new and amended acts will enter into force from the beginning of 2020:

  • Act on the Amendment of the Land Use and Building Act (467/2019)
  • Act on the Redemption of Real Property and Special Rights for Securing National Security (468/2019)
  • Act on the State's Pre-emption Right in Certain Areas (469/2019)
  • Act on Real Estate Acquisitions Subject to a Permit (470/2019) and amendment acts relating to acquisitions (471/2019)–(474/2019)

What has Changed?

The acts concerning permitting, pre-emption and redemption supplement one another and provide the state with better tools to intervene in the ownership and use of properties that threaten national security. Furthermore, the reforms provide improved tools to take national security into account in advance, for example, when planning the use of areas.

Restrictions were placed on the acquisition of real estate by non-EEA buyers so that non-EEA natural or legal persons can acquire real estate in Finnish territory only if the Ministry of Defence grants a permit for the acquisition. Even if a legal person has its registered office in the EEA, it requires a permit if at least one-tenth of the total votes in the legal person or corresponding actual control is held by a non-EEA natural or legal person.

How these reforms, particularly the permit requirement, will impact foreign acquisitions of real estate remains to be seen. Hopes are that the impact will not be negative. The danger is that foreign investors could find the Finnish system to be too rigid. At worst, this could lead to foreign investors looking for investment targets in other countries, which would reduce the liquidity of the Finnish real estate market.