SEB: Activity on Estonian property market highest in 5 years

Apartments in Tallinn.
Apartments in Tallinn. Source: Siim Lõvi /ERR

Approximately 2,700 transactions for the purchase and sale of apartments took place in Estonia in November, which is more than in any single month in the last five years, SEB Bank said on Friday. Almost 90 apartments changed hands every day.

The number of transactions dropped from 23,200 in 2019 to 21,900 last year due to the coronavirus crisis. This year, more apartments were sold in 11 months than in the whole of 2020, the bank said.

Several factors have contributed to the recovery of the property market this year.

At the beginning of the crisis, many families postponed property purchases, but the current recovery in employment, rising wages in several sectors and increased savings have given them the confidence to enter into deals.

The market also saw the arrival of people who withdrew their second-pillar pension savings in the autumn and decided to use the money to make a down payment for a home loan or to purchase an apartment. The number of investors in real estate has also increased.

The busiest period in the property market was autumn. According to statistics from the Land Board, in September and October, nearly 2,500 and 2,600 apartments changed hands per month, respectively. In November, transactions rose to nearly 2,700.

Apartment buildings in Tallinn. Source: Siim Lõvi /ERR

Overall, the number of apartment sale and purchase transactions is expected to reach almost 27,000 this year.

According to the bank, the activity of the real estate market has also affected the home loan market.

Between the beginning of the year and the end of November, SEB had helped almost 5,300 households to buy or renovate their homes, which is 35 percent more than last year. The bank issues approximately 20 home loans per business day.

There are almost 740,000 dwellings in Estonia and just over 167,000 home loans with real estate as collateral. Thus, only about a quarter of homes have been placed as collateral for a home loan, while the rest are loan-free.

In the first 10 months of this year, the number of valid home loan contracts increased by nearly 400, and as of the end of October, there were 167,471 home loans on real estate collateral in Estonia. The number of home loans ending is in the same order of magnitude as that of new loans.

Increase in homes purchased outside of Tallinn, Tartu

An analysis of data on real estate transactions concluded in Estonia in the past five years shows that, contrary to popular belief, people are buying property also elsewhere than just in Tartu or Tallinn.

The statistics show that the real estate market is also becoming more active outside the larger cities, with the share of apartment transactions in Harju County, which includes Tallinn, dropping from 55 percent in 2017 to 53 percent in the first 11 months of this year.  

The share of transactions in Tallinn has also decreased, and for the first time in five years transactions with properties in the capital city make up only 40 percent of all transactions.

Apartments in Tallinn. Source: Siim Lõvi /ERR

At the same time, the share of transactions in Tartu County and Ida-Viru County has increased. More transactions were made in these counties in the first 11 months of this year than in the whole of the previous year, accounting for 14 and 11 percent of all transactions in Estonia, respectively.

In other counties, the number of transactions has been stable for years. For example, 6 percent of all real estate transactions are made in Parnu County, 4 percent in Lääne-Viru County and 2 percent in Järva, Viljandi, Valga and Võru counties each.

In the past 12 months, the construction of apartment buildings has risen rapidly, with construction prices up by almost 20 percent in a year. The increase in construction prices in the last five years has been around 25 percent. This means that nearly 80 percent of the price increase of the last five years has taken place this year.

In five years, the average price of apartments per square meter has risen by 37 percent, and in the third quarter of this year, a square meter cost €1,512 on average.

Real estate prices syncing with wage rises

The rise in real estate prices is in synchronicity with the growth of incomes in Estonia. Wages have grown by 36 percent over the past five years. In the third quarter, the average gross monthly wage in Estonia was €1,553.

If in Estonia in general the average gross monthly salary exceeds the average price per square meter of an apartment, in Tallinn this is not the case and the average pay is lower by more than €600.

In the capital, the price per square meter of apartment properties increased by 34 percent over the past five years, reaching an average of 2,362 per square meter in the third quarter. Over the same period, gross monthly wages increased by 31 percent, reaching an average of €1,746 in the third quarter.

Currently, half of home loans are issued to people aged 26-35. According to Statistics Estonia, more than 183,000 people are in this age group this year. However, Estonia's population is ageing rapidly, and in five years said age group will be smaller by as much as one-fifth.

As a result, the property market is entering a more stable and calmer period for buyers in the coming years. The energy efficiency of the property will become more and more important for buyers, which is why financing solutions are expected to start taking more account of energy-efficiency than they do now, SEB Bank said.

Realtor: More and more buyers unnerved by price levels

Houses in Tallinn's Kadriorg district. Source: Siim Lõvi /ERR

However, against a backdrop of low supply, prices of apartments in Tallinn have been pushed so high that buyers are already starting to back out of deals in the hope that the market will calm down, realtor Pindi Kinnisvara said in a press release on Friday.

Anton Novikov, broker at Pindi, said although the overall balance of bank deposits is high and banks are happy to lend, apartment prices that have risen by more than ten percent over the past year have moved beyond reach for many buyers.

"There are very few offers on the market, while overpriced apartments may have to wait a few months for a new owner. In the case of an apartment costing one hundred thousand euros, for example, lowering the price by a thousand or two will immediately bring in hordes of buyers,"  Novikov said.

The broker said such consumer behavior clearly points to the problem that today's buyers have every last euro at stake, as otherwise they would not be bothered by a small mark-up. 


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Editor: Helen Wright

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