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Research the main reasons why Estonia property is now such a worthwhile asset in the international real estate market today.
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Property investment in Estonia is an increasingly popular option to overseas investors. Find out here the reasons why.
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While under Soviet rule until 1991 and just prior to joining the EU, thirty years had passed in Estonia without new construction; people lived in heavily overcrowded, soulless, Communist-style accommodation. Today, however, construction is positively booming while the social and economic climates in Estonia are fast growing closer to those of Western European countries.
In addition to overseas buyers, Estonia’s property market is seeing an uptake from domestic buyers, enticed by low interest rates, growing employment, higher wages (growing some 11% p.a.) and the desire for quality new homes. The nation’s emerging, wealthy middle class, and a strong real estate market are beginning to attract buyers seeking investment property in Estonia.
If you are considering purchasing property in Estonia, a look at our Guide to Property in Estonia will help you gather information about Estonia and the property purchase process. If your purchase is targeted purely as an investment, a visit to our Estonia Property investment pages should provide interesting reading.
Since EU membership in 2004, the property market in Estonia has been surging. In some cases, property prices have doubled since 2000. With Estonia on track to adopt the Euro within the next two years, the future of the nation’s real estate market looks set onto a positive path.
Media coverage has increased overseas interest in Estonia and over the past two years, the country has been experiencing the most significant growth ever. Today, gains are somewhat more stable than in previous years, with GDP now at around 7% (2007) and short-term investors treading more carefully than before. However, thanks to the development of a favourable mortgage market, increased jobs and rapid wage growth, Estonia allows more of its consumers the ability to afford their own properties – as a result, property price growth in Estonia is still thriving.
It is true to say that prices are leveling off slightly as is true in all former Eastern Block countries, especially those that have joined the EU in recent years. Nevertheless, the main attraction to the Estonian property market is that the economy is doing very well, while demand by overseas and, as importantly, local investors for top quality housing to buy and rent is still far outstripping supply.
Tallin, the capital of Estonia, is growing at a rapid rate and apartments in the Old Town are a popular option amongst overseas and local buyers. They are supplying a high demand for attractive urban accommodation, while being located in the most stunning part of the city. In general it is here that buyers see the highest capital returns and rental yields in the entire country.
A new trend is emerging as the average Estonian’s spending power increases: many people are now seeking holiday homes out of the city in hotspots such as the much talked-about Parnu, where high returns are expected for the medium to long term future.
The arrival of low cost air services from Easyjet, Al Italia, Air France and other, mainly Scandinavian airlines, is allowing easy access from other European destinations, adding to Estonia’s international real estate appeal.
Property in Estonia has, and continues to see, marked growth: foreign investment is bringing business people to the capital city of Tallinn, often dubbed ‘Mini-Manhattan’, as well as other major towns, to be close to work. With taxes dropping to 20% by 2009, Estonia welcomes foreign investment and an influx of businesses from Finland, Sweden and even the US is spurring on this progressive country. A growing number of bars, restaurants and shopping facilities are also helping to attract visitors and expats to the Estonia’s cities.
The property market is set to grow at a steady pace, as the population’s wealth grows, enabling today’s investors to sell on their properties for substantial profits to an increasingly affluent local population. For foreign purchasers wishing to buy more than one property and purchase through a limited company in Estonia, significant savings can be made on tax on profits and gains.
A huge shortfall of new homes continues to characterize the Estonian real estate market today, and some experts predict that it will be some 10 to 20 years before supply finally meets demand. Meanwhile, ever increasing land, labour and material costs are beginning to have an impact on prices; nevertheless, growth sits at approximately 12.5% per annum, with prime locations such as the capital, Tallinn, attracting the strongest capital appreciation, in combination with rental yields of around 5% per annum.
The local market cannot be underestimated in Estonia: as the nation’s working population becomes wealthier annually, those buying real estate will find a ready, local market to fuel their investments.
The fact that inflation remains very low, tax is lower than ever (average 24%) and the mortgage market is on the verge of massive growth means that ever-increasing numbers of Estonians will be able to afford to buy their own properties. Investors buying in and around Tallinn should certainly be watching their investments grow steadily in the medium term, in line with the population’s ever-increasing wealth.
The majority of overseas purchasers of investment property in Estonia focus on the city of Tallinn and its historical Old Town, where many buildings have been renovated and converted into trendy, new apartments. Property on the outskirts of the city is certainly worth exploring, and new beachfront developments just outside the city are likely to prove a good investment. Other emerging hotspots include: the 'Summer Capital' of Parnu which is starting to market itself to overseas homebuyers, as well as the popular locations of Tartu and Haapsalu.