Homebuyer, make sure the builder’s finances are in order

In the first half of 2023, around 300 construction companies went bankrupt in Finland, more than a hundred of them being residential builders. Unsold apartments have left a large and growing gap in many builders’ cash reserves, and as expenses continue, payment difficulties, corporate restructurings, and more bankruptcies may follow. For homebuyers, it is therefore wise to look into the builder’s financial position before making a purchase decision. In the worst-case scenario, payments already made may not be fully secured if the builder runs into financial trouble—or even bankruptcy.

Here are a few financial figures worth examining before buying. This information can be found in the builder’s financial statements, but if the fiscal year ended several months ago, it is a good idea to ask the seller for more recent data:

1. Cash and bank receivables: This needs to be sufficiently large to ensure the company can handle unexpected situations. Especially in today’s weaker housing market, companies with low cash reserves may struggle to pay bills and meet obligations. Ideally, cash reserves should amount to several percent of the company’s annual revenue. Olas Group currently has around 1 million € in cash, which enables the continuation of projects and operations for up to a year without a single new home sale. However, sales have been strong: April–June was the company’s strongest quarter ever, with nineteen apartments sold. Before starting each new construction project, Olas ensures that there is sufficient cash flow to complete the project. One example is the joint purchase events for the first homebuyers, where a sufficient number of buyers is secured before construction begins.

2.Net profit of the fiscal year indicates operational profitability. It is in the buyer’s interest that the company is profitable, as this increases confidence that the builder will complete the project and fulfill post-construction responsibilities. Olas achieved a commendable operating margin of about 10% in the last fiscal year and forecasts the same for 2023.

3. Revenue level and its development compared to previous fiscal years shows how steadily the company is managed. Excessive risk-taking and aggressive growth can backfire during weak market conditions if apartments remain unsold and cash dries up. Sustaining profitability is a good indicator that growth has been on solid ground. Olas has increased its revenue profitably every year and forecasts the same trend to continue this year, with revenue expected to reach at least 17 million €. In January–June 2023, revenue grew by about 22% compared to the same period last year.

4. Credit rating assesses the company’s ability to pay now and in the future. A credit rating can be checked for a fee from providers such as Bisnode. Bisnode Bisnode has awarded Olas the highest possible rating, AAA.

Our company name, Olas, refers to the groove on the bottom of a ski that provides stability and direction. In the spirit of this name, we continue to progress steadily and profitably toward 100 million € in revenue in the coming years, carrying out each construction project with care. If you are interested in buying a home from Olas, we will gladly present our company and up-to-date financial figures to help you make a confident purchase decision.

Olas – Geothermal homes built from northern wood

Markus Alitalo
CEO
Olas Group Oy