Experts: Real estate market is heating up, no price drop expected

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Housing construction in Tallinn. Source: Siim Lõvi/ERR

The Estonian real estate market is currently very active and demand is much higher than apartments available, experts say. The fear of real estate running out has also increased prices, but since developments have picked up, the chances of a drought are soon decrease.

The real estate market has heated up considerably and three-four room apartments seem to be the hot commodity, said Uus Maa real estate bureau broker Ketlin Jundas. "Before the health crisis, investors found one-two room apartments to be good deals, it is family apartments today," she said.

Both new developments and old apartments are being bought out with interest levels high for all other kinds of real estate as well, Jundas said. Data from Uus Maa real estate bureau, active across Estonia, shows that real estate deals are active not only in Tallinn but other regions as well.

"The real estate market is very active currently, there is even some heating. The reason for it is still that there was a waiting position taken in the spring of last year with the crisis starting, nobody knew anything. Buyers got a little scared, developers and sellers got scared and everyone was waiting for something. By today, they have all arrived back on the market. What has happened is that buyers feel like they need to grab something quickly, otherwise they will miss out," Jundas noted.

Anyone hoping to buy an apartment in a new development should not go with the current because developers will catch up, the broker said.

Developers are truly working hard. "The real estate market showed signs of becoming more active since last fall. We sell 10-20 homes a month, which I think is about the average market result. Consumer confidence seems to be quite strong. Most apartments in constructed buildings have found an owner," said Lauri Laanoja, sales and marketing manager for real estate developer Bonava.

Laanoja noted that a three-room apartment suitable for a family developed by the company currently costs around €150,000. Bonava is developing 350 new apartments in the Uus-Mustamäe development, a majority of which have found a buyer before completion. Laanoja said it has become a normalcy that most apartments are swooped up before development finishes.

"The real estate market is active but it is not a boom. Experts are saying there is a risk of overheating instead," Laanoja noted.

Ketlin Jundas added: "I would certainly not call it a boom yet. To say buy now since you have nothing to purchase in the fall is arbitrary."

Lauri Laanoja said the regular yearly price increase in Tallinn is up to 5 percent. "It has not accelerated much over the last year, meaning ultimate activity on the market is not in the interest of any parties involved," he said.

Banks also note increased activity on the real estate market. On the one hand, the increase sum of available money, stemming from last year's reduction in consumption, is looking for an outlet. On the other hand, there is fear for a price increase, caused by the resources that will open once people withdraw from their second pension pillar in the fall.

All this is reflected in the number of housing loans with March of 2021 topping the same month last year with €156 million more in loan distributions.

"In Tallinn, for example, the price per square meter has reached €3,000. It has never been this high. Experts do not predict a decrease in prices, prices are likely to increase. Some people are still making deals rather sooner than later," said Tanel Rebane, head of retail banking at Luminor.

A study by Luminor shows that close to half of young families could change homes in the coming years. People are prepared to pay up to €300 in monthly loan payments, but many admitted that they must save up for 13 years to self-finance a purchase.

Rebane said that real estate prices will continue to change based on the rising living standards. "Real estate prices in Estonia have increased, they have gone up in basically the same pace as people's salaries. If we look at how many people there are in Estonia who own real estate with a loan and compare it to developed western Europe, we have twice as less of such people," Rebane noted.

And if young families were asked how much they are willing to pay back in loans in a few years, they would respond with €400, Rebane added.

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Editor: Kristjan Kallaste

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