Market for new builds sluggish in face of rising construction prices

Real estate in Estonia.
Real estate in Estonia. Source: Siim Lõvi /ERR

The number of building permits issued for new apartments in Tallinn in the first quarter of 2022 fell to almost a quarter of the figure recorded at the same time last year, while a sharp rise in construction prices have also made real estate developers more cautious.

Managing director at realtors Arco Vara, Elari Tamm, told ETV news show "Aktuaalne kaamera" (AK) Thursday that: "While we might have expected that developments would start to rise by the end of the coronavirus pandemic, in actual fact we would have to concede that we have not seen such a strong trend as of the end of the past 12 months."

Real estate analyst Tõnu Toompark told AK that processing projects in difficult conditions also translates to an increase in apartment prices.

He said: "Asking prices of new apartments have risen significantly, compared to a year ago, buyers are being asked to pay 25-35 percent higher sales prices."

Statistics demonstrate that while in Q1 2021, 867 building permits for new apartments were issued in Tallinn, in Q1 2022 the figure stood at 230 – the first time it had fallen below the 300-mark in seven years.

SEB analyst Mihkel Nestor points to inflation in construction materials as a culprit, at least until now and following the start of the war in Ukraine.

Nestor said: "There may have been an additional jump in prices here at the beginning of the war, but that is already disappearing. There has been a lot of speculation in this market. In fact, fear is dissipating."

"In general, in this region at present; in Sweden and Finland, for example, I would venture say that in the second half of the year, prices will still be lower than today's level," said Nestor.

As demand for construction falls, so too does labor demand, while supply has also fallen, partly because of the reliance on Ukrainian labor in the construction sector, AK reported.

Looking ahead, Elari Tamm said that developers are also looking for more cost-effective solutions, and new major developments in the Tallinn area will likely remain mainly on the outskirts and in the commuter belt.

Editor's note: In the Estonian real estate market, "pakkumised" are often referred to. While this literally translates as "offers", it is more-or-less the opposite of what the term means in, for instance, the UK. "Offers" here means the stock of real estate objects on the market, i.e. being offered by their owners for sale, and not bidding prices from potential buyers.


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Editor: Andrew Whyte

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