Even though the Land Board's recent mass valuation of land dramatically hiked the value of land in many parts of Estonia, land tax is not set to be hiked as dramatically as the law does not allow for an annual increase of more than 10 percent. Municipalities do not forecast a sharp rise in revenue.
The value of land has grown by 8.8 times since 2001 in Hiiumaa. Municipality Mayor Hergo Tasuja told ERR that one reason is that Hiiumaa is a popular living destination.
"We face a challenge today in that more people want to move here than we have dwellings. There are buildings that need renovation, plots exchanging hands. Every decent place has been bought," he admitted.
Tasuja said that interest in moving to Hiiumaa spiked in March of 2020 when the coronavirus started doing the rounds. Since then, the number of residents has been growing from one month to the next, with the island now just 150 people short of its 2018 goal of having 10,000 residents. The Kõpu Peninsula and the lively village of Kalana make for the most popular destinations.
Tasuja said that a private school-kindergarten has been opened in the village and young families with children who used to spend their summers there have moved to Hiiumaa for good.
Local governments will lay down new land tax rates next summer and they will enter into force from January 1, 2024. Tasuja could not say how the recent valuation of land could affect the tax rate as it has not been discussed on the political or local government levels. Current legislation does not allow the land tax to be hiked by more than 10 percent annually.
"It will not result in a major change in our budget. Land tax is good for 2 percent of our revenue. Even if the tax rate is hiked by 10 percent for 2024, the effect would still be modest."
The price of residential land grew the most in Tartu County. Kambja Municipality Mayor Illari Lään said that the drastic spike in the value of land is due to the municipality's nearness to Tartu and contrast between what was there a few decades ago and what has happened since.
"If a few decades ago, certain areas were overgrown with trees or brush, the general plan has changed things, changed the intended purpose of land, which quite naturally has manifested in the value of land."
Lään listed Ülenurme, Tõrvandi and Soinaste as more popular places in the municipality.
Land Board looked at peak market values
Veronika Ilsjan, spokesperson for the Land Board's valuation department, said that the agency's valuation is as of June 30, 2022 and considers real estate transactions from the last six years.
"We find ourselves in a curious situation. Our valuation is from June 30, 2022, while the real estate market is now showing signs of cooling. I believe we have fixed land values at the market peak," she said.
The expert added that the real estate market was only showing the first signs of livening up when lands were last valued nationwide in 2001. Therefore, the extent of change is maximally reflected in the valuation that explains the rather startling figures.
The results of the 2022 mass land valuation will be applicable starting in 2024. That said, the land tax rate cannot be hiked by more than 10 percent a year, while actual local rates can be 2.5 or even five times lower than the maximum today.
Editor: Marcus Turovski