Estonian House Prices are still robust
In April this year, Global Property Guide reported that Estonia's house prices were surging again, fuelled by low interest rates, moderate to good rental yields and rising foreign demand. Despite weaker than anticipated economic growth, last year the country's price for an average apartment in Tallinn, the capital city, grew by 12% (or 9.54% inflation-adjusted), bringing the average square metre cost to 1,744 euros, according to OverHaus. This represented a considerably increase from the price growth of 3.87% seen in 2015. The trend of rising property prices is continuing this year.
In the final quarter of 2016, Tallinn's property prices for apartments shot up by 3.2% quarter-on-quarter (3% inflation-adjusted), a trend confirmed by national figures published by Statistics Estonia, the official office of statistical information. According to Statistics Estonia, the average price of a property in Tallinn purchased in 2016 rose by 8.74% to 1,692 euros per square metre, compared to a modest 4% rise in 2015, seen on a year-on-year basis.
This picture was confirmed in the other main cities of Estonia, such as university city Tartu, where house prices rose by 7.54% year-on-year to 1,247 euros per square metre in 2016, and in Parnu, the country's favourite summer retreat by the sea. Here the price of an average property rose by 8.14% to 999 euros per square metre, having already shot up by 15.89% in 2015.
On a national level, prices for the average home in Estonia grew by 9.85% to 676 euros per square metre last year, following on from an 8.11% increase in 2015. That means that Estonian property is still a bargain compared to markets like Spain, France, Italy or Portugal for example.
Wages in Estonia have remained fairly constant over the past 12 months, but with more Europeans settling in the country, there has been huge foreign appetite for property in Tallinn, Tartu and Parnu, and anywhere within an hour's drive of these three cities. Local property experts believe that the Estonian housing market is therefore going to remain robust in 2017.
Estonian Rental Yields
The market is partly driven by moderate to good rental yields, ranging in Tallinn from 5.3% to 6.3% gross, according to the Global Property Guide's research data, which was confirmed by OberHaus, whose own data showed that gross rental yields for apartments in Tallinn last year ranged from 5% to 5.5%, depending on city location and quality of the apartment.
OberHaus also found that smaller apartments tend to bring higher rental returns for buy-to-let landlords. An apartment with 40 square meters offers moderate to good rental yields at 6.%, but an apartment with 120 square metres only earns rental yields of 5.3%. The reason for this lies, one suspects, in the type of tenant smaller properties tend to attract, namely students and graduates starting their first job. There's plenty of those around, so smaller apartments rarely stand empty during the year. At around 100 to 300 euros per month rental intake and a purchase price of less than 95,000 euros, a smaller apartment is a smart investment.
According to OberHaus, rents for apartments in Tallinn rose a little in 2016, when more modern apartments came on the market that year. By the end of 2016, the asking price for rental apartments in the city centre was 10.00 euros per square metre, while tenants paid between 8.00 and 9.00 euros in the suburbs of the capital. An average one- to two-bedroom city centre apartment, fully furnished, ranged from 430.00 euros to 530.00 euros per month last year, and there has not been much upward movement since then.
Apartment ownership, according to the Estonian Land Board, now stands at 55% in the country, based on the apartment markets of 17 Estonian towns. The rise in apartment ownership is partly driven by a new phenomena, real estate crowdfunding, which has become a highly competitive market in the Baltic States, according to leading property portal City24.ee.
A new Form of Real Estate Investment for Estonia: CrowdfundingThe website reported this summer that the first group buying and crowdfunding platform, Latvian portal Bulkestate.com, has begun to operate in Estonia. The founders of this real estate crowdfunding platform believe that investments made via their platform offer participants sufficiently high interest rates and trustworthy partners in secure and safe transactions.
Real estate crowdfunding in the USA and Europe has been an alternative source of investment capital for a while now, but is fairly new for the Baltic region.
Igors Puntuss, co-founder of Bulkestate.com, explained that as wages rose rapidly and with it "population welfare", meaning disposable income and savings, people living in Baltic countries began to look for safe and profitable ways to invest their spare cash. But banks are not able to provide smaller investors with attractive interest rates on deposits and, as the market of real estate crowdfunding is far from maturing, there are opportunities to be had.
Bulkestate.com stated that funds of investors are secured by a mortgage for all the offered projects, of which there are many, and every project is scrutinized by a Loan Committee, and also separately by company partners.
Co-founder Puntuss said: “For many potential investors reliability is even more important than high interest. Therefore, before a project is offered to investors, we and our partners examine it in the most thorough manner. Only afterwards, when we have studied all the facets of the matter and everything is correctly calculated, it becomes available for financing.”
He added that high reliability does not equate to low profit, when it comes to real estate crowdfunding. The website offers an annual interest rate of 14% at a low threshold for those who are risk adverse, and the minimum investment required is just 50.00 euros at Bulkestate.com.