Ground rent funds provide low-risk investments in residential plots


Deas Asset Management expanded its business to a new sector after acquiring two ground rent funds in early 2023.

The real estate asset management company DEAS Asset Management expanded into a new sector after acquiring two ground rent funds from Korkia in March 2023. Markus Liimatainen, Fund Manager of the acquired Korkia Tonttirahasto Ky and Korkia Tonttirahasto II Ky, transferred to DEAS with the transaction. After the name changes carried out after the transaction, the names of the funds will be Deas Tonttirahasto Ky and Deas Tonttirahasto II Ky.

Liimatainen acts as the fund manager of the ground rent funds and has been involved in the founding of both funds. The funds’ invested capital totals 170 million euros, and they have provided financing to approximately 130 plots that have been or will be used for the construction of residential buildings.

DEAS’s ground rent funds only invest in zoned residential plots that generate both rental income and potential capital gain if the tenants of the plots redeem a share of the plots or the entire plots for themselves. These are therefore optional rental plots which give the tenant the opportunity to free themselves from paying rent by purchasing the plot if they wish to.

– Investing in ground rent funds is a fairly low-risk investment with a stable return. The rental income starts flowing in as soon as we buy the plot, and at the same time, the fund investors get a return. The risks are mainly related to the price of the debt finance and its availability, as well as the rents during the construction period, when the construction company is responsible for paying the rent, says Liimatainen.

For DEAS, the completion of the acquisition meant not only expansion into a new sector but also a stable cash flow from the management of the funds – growth prospects are also visible in the future. In addition, the customer base of DEAS expanded significantly as a result of the transaction.

In both funds the investors are professionals. In addition, the funds are closed, meaning that no new investors can be added to them, nor can investors redeem capital from them before the end of their term. For this reason, according to Liimatainen, the cash flow of investments can be predicted quite well.

Ground rent funds are limited partnership structures. For the first fund, the almost ten-year term will end at the end of 2027, and for the second fund at the end of 2031. The term of both funds may be extended by a decision of the fund manager for a maximum period of three years.

The investment period continues throughout the term of the funds, which means that the money returned to the funds through the redemptions of plots is reinvested. Rental income and capital gains realised from redemptions are paid to investors annually, says Liimatainen.

Three good reasons for ground rent funds

Ground rent funds benefit home buyers, construction companies and fund investors. The buyer has the opportunity to get an apartment with less capital when the apartment is on a leased plot. However, residents can buy their own property’s share of the plot at a later date – for example, when their own financial situation improves.

An optional leased plot is also good for builders, as the construction company can reduce the amount of equity committed to the construction project when it does not need to be invested into the purchase of the plot. The funds have also made it possible to build more in the Helsinki Metropolitan Area and other large cities.

From the perspective of fund investors, ground rent funds generate good, stable and long-term cash flow with reasonably low risk.

Today, optional rental plots are common. In the Helsinki Metropolitan Area, the majority of new residential buildings are built on optional rental plots. In addition, they are very common in growth centres such as Oulu, Tampere and Turku.

The market for ground rent funds in Finland

The total market for ground rent funds in Finland is currently estimated to be well over 2 billion euros. As a result, DEAS’s ground rent funds account for a fairly large share of the total Finnish market.

– In terms of the total capital of our funds, we are probably among the top five ground rent fund operators.

According to Liimatainen, the current ground rent funds are doing relatively well in relation to the global situation.

– Of course, the funds must be managed as well as possible in all circumstances, and the money coming in must always be reinvested safely and profitably. We are successful when we get a good return for our investors.

– Everything depends on results and profits, Liimatainen continues.

The number of market players in the sector is small. One of the reasons is the limited number of plots available and the fact that construction does not take place overnight, so investing also takes time. In addition, the business is administratively somewhat complex, and few companies and people in the industry have managed ground rent funds and been involved in the ground rent fund business.

Unlike other real estate categories, it is impossible for foreign investors to quickly invest large amounts of money in plots because building a plot portfolio takes time. The investors in the ground rent funds are therefore mainly from Finland.

Although there is currently turbulence in the real estate market, the long-term prospects for ground rent funds are good, and the goal is to establish a third fund at some point, says Liimatainen.