Which apartments and houses are in increasing demand in Estonia? What is now happening to real estate prices in the country? In which areas are properties being purchased most often? You can find out all this in our expert material.

How did the pandemic affect the Estonian real estate market, and how are things now? Who of the foreigners is actively buying real estate in this Baltic country? What is the procedure for buying and selling real estate in Estonia? Elis Pihl, real estate broker and marketing specialist of the real estate agency Pindi Kinnisvara, told us about these and other important nuances. 

«It all started with just a change of mindset»

— Compared to many other countries, Estonia is quite small and because of that our market can be quite responsive to changes and sometimes things can get quite hectic. 

For example, when COVID-19 hit us, the real estate market froze totally for 1,5 months within seconds (figuratively speaking); but despite quite logical assumptions — that rough times are ahead — prices started to skyrocket soon enough and activity on the market was higher than ever before. And the change, which was contrary to expectations, mainly came from two reasons: 

1) As the COVID-19 situation cleared more or less up, people who had planned to buy property before the pandemic and had put it on a hold for a while, now wanted to finish their deals — and this increased demand.

2) As ridiculous as it sounds, but many people really started to think about life values and life conditions while being stuck in the apartments and having no face to face contact with close ones; this created that «now or never» mentality what we felt also on real estate market really strongly. People started to fulfill their dreams.

So, ironically, it created even bigger demand, which, in turn, constructed a «perfect» chaos: market participants literally grabbed anything that was available, as well the ones which were hanging on the market already for some time with no interest before.

I think, this little example describes well how quickly responsive our real estate market can be sometimes. As I like to joke, it all started with just a change of mindset.

Also, it should be noted that Estonia is distinguished by another circumstance: in our country, there are some differences in the procedures of buying/selling properties. In Estonia, the broker is not the one who formalizes the deal. Every transaction related to properties has to be done through a notary, and it is quite well regulated, functional and safe system we have here.

«There is a growing demand for apartments and homes with more sophisticated heating systems»

For sure, the demand for real estate in the country has changed recently. In the past 2 years, plots and cottages have come in demand, and mostly because of COVID-19. People graved to get out of their apartments and cities to literally just get outside and connect with the surrounding. Buying a plot or cottage was a perfect opportunity for that. 

And overall, Estonians always have had tendency to dream about summer cottages, so the ones who had necessary financial capacity just went for it, and the other ones bought the plots to start fulfilling their dreams step by step. Actually, the activity of transactions with plots roughly increased 2x times compared to earlier.

Now, in light of the significantly increased cost of electricity and gas, there is a new increasing demand for apartments and houses which have more thought-out heating systems and also apartments with furnace heating. I will remind that only just roughly a year ago, apartments with furnace heating were not exactly the first choice for market participants.

«In recent months, we’ve seen some cooling of the market»

If we look this year, then mostly prices have gone up, though the peak was in July. Only now, within the last few months, we have started to notice some cooling. It’s certainly not showing up in transaction prices yet, but it’s undoubtedly affecting offer prices and the general mood.

Six months ago, most of the prices had much air in it. Now, the offer prices are more in accordance with actual market value.

What factors influence it? 

  • War in Ukraine.
  • Quick inflation. In November, it was 21.4%. So there is a lot of confusion about the future going on. 
  • As mentioned before — electricity and gas prices have gone up, so communal bills can be quite startling now. Overall, everything is more expensive and market participants do not have much security. As in fact, it is the lowest than it is ever been right now.

In our capital city, Tallinn, price on average is currently (based on 2022 statistics) 2 844 €/m² for apartments in size 41-54,99 m². Last year (2021) it was averagely 2 282 €/m2.

The average cost of apartments in different Estonian cities 2021 vs 2022 (41-54.99 m²):

 

2022

2021

Tallinn

2844

2282

Tartu

2195

1741

Pärnu

1983

1509

Average gross salary in 2021 was €1548 — today it is €1701.

«Estonians have a pretty strong sense of ownership»

— The rental housing market in Estonia has never been a big trend. Since the credit conditions here are quite normal, and it is quite easy to get a loan to buy a house, people prefer to do this.

And it is no secret that Estonians have a pretty big sense of ownership, which probably comes from of the history of our country. So yes, people rather own than rent, especially if we talk about houses. Rental prices for houses are quite high, so people choose to own and pay for the loan.

Note. The cost of renting a one-bedroom apartment in the center of Estonian cities is $600; outside the center it is $450.

— Real estate in Estonia is actively bought by foreigners — mainly those who relocate because of the work, as well as our northern neighbours.

The most popular areas for buying real estate in Estonia are mainly bigger cities — Tallinn, Tartu, Pärnu. This happens for logical reasons: these areas have better infrastructure than rural areas, more job opportunities, etc.

If we compare our real estate prices with Finland, we still have lot to catch up, though our prices have gone up a lot during last two years. So yes, there are many Finnish people who own luxurious properties in Estonia, because it is more affordable here.

About conditions — there are some restrictions. For an example, buying property on Baltic Sea shore, but in generally conditions are favourable. You do not have to have Estonian residency to buy property here. But if you want to get a home loan — you just have to have Estonian bank account where you receive your earned salary. Nothing too complicated, but of course the easiest way for foreigners is to contact a broker who will guide them through all the steps.

For information, it is not possible to obtain a residence permit or citizenship just by buying a real estate in Estonia.

As for earnings on the property in the country, we have quite active rental market: efficiency can be between 4-12% if we calculate it from transaction price.

What do I expect to see in the future? At the moment, there is some uncertainty about the future. As mentioned before: high inflation rate has left a huge mark how people evaluate their financial capacity and the market has cooled down with past two months.

But I prognose that spring will clear things up and market activity will recover. Of course not at the level as it was during the pandemic, because this situation was abnormality fuelled by panic, but at the level as it was before the pandemic.