The economy is living anxious times and apartment sales are down. That said, statistics still reflects a very different picture.

Developer Merko sold five buildings worth of flats in its Vesilennuki project right next to Tallinn's prestigious Noblessner Quarter this year, with the price per square meter on the other side of the €5,000 mark. The project's website lists just one apartment as still available. A three-room flat on 83 square meters going for €450,000.

Peep Sooman, sales partner at Pindi Kinnisvara, told ERR that purchase agreements are made well before the actual transaction goes ahead in the case of new developments. This means that current transactions reflect deals made up to a year ago, which fact has an effect on statistics. New apartment sales are seemingly keeping the price level up, even though prices have been falling for months on the second hand market.

"Prices have come down 10 percent on the second hand market, broadly speaking, while it is 20 percent for some property classes. If it is a changing trend, statistics will catch up after a delay because of the new developments shift," the realtor said.

Sooman added that because the relative importance of new apartment sales is growing, a statistical anomaly could even see the average price per square meter go up in Tallinn as new developments tend to be more expensive.

"The lower the relative importance of cheaper products on the market, the higher the average price," he explained.

Slowing new apartment sales are forecast to be reflected in next year's statistics once reservations made earlier this year mature as transactions.

"There is a delay in all of it and we might see a sharp slump," the Pindi Kinnisvara representative said. "The market has been stewing for a long time so to speak, while statistics is yet to catch up."

Sooman said that transactions in cities were down 35 percent on year in November, with the share of new developments rising from 10 percent to 30 percent. This in turn means that second hand apartment sales are down 35 percent and more. The question is whether this is just the beginning, he suggested.

"Prices are down up to 20 percent. Winter heating bills haven't even arrived yet. Inflation is chugging along at full speed, home loan payments are growing, with the Euribor rate at 2.6 percent today and coming up on 3 percent," he remarked.

"I looked at how the market cooled last time. [An Euribor rate of] 3 percent might not be the end of it, and with money more expensive, people looking at bigger utility bills, food price advance, which salaries cannot keep pace with, purchasing power has fallen to a point where people simply postpone getting a new home."

Elari Tamm, executive manager of Arvo Vara, said that it would be more difficult to find people willing to pay €5,000 per square meter today as buyers have lost confidence.

"People tend to postpone transactions," Tamm agreed.

He said that people often need to sell their old home before buying a new one, while prices of older apartments in Tallinn's sleeping districts have been hit harder and they seldom fetch what sellers want for them.

"There will come a point where the seller has to decide whether they want to keep sitting on their expensive price or adjust it to reality."

Tamm said that it is difficult to forecast what will happen next. He believes the market is close to bottoming out, while the bounce back might be a long time coming.

"We don't know how long the slump will hold. The war ending and supply chain issues being addressed are one thing. The real estate market is a part of the broader economy, not a separate unit."

Older apartments could flood the market

Peep Sooman said that new developments are fewer now and because supply is modest, sales are not a problem. The situation is less rosy on the second hand market. Used apartments could flood the market should the economic situation deteriorate.

He said that employment is key. As long as people have work, there will not be a crash but rather a soft landing.

"But should the labor market see mass layoffs, we will soon find ourselves where we were in 2009. That is what everyone is keeping a close eye on – what will happen on the labor market," Sooman said.

"Banks evaluate solvency in a different way. Self-financing may no longer be enough as old assets have lost in value," the broker said. "A loan one could service yesterday may no longer be feasible today because the Euribor rate and everyday expenses have grown."

Both Tamm and Sooman found that developers can use the period to draw up plans and designs and come up with new trends.

--

Follow ERR News on Facebook and Twitter and never miss an update!