Buyers' interest in real estate remains low

Apartment buildings in Viimsi.
Apartment buildings in Viimsi. Source: Siim Lõvi /ERR

Although property prices in Estonia are falling slightly, buyers' interest remains subdued. According to analysts, changes in purchasing power and unemployment levels during the second half of the year will have a key impact going forward.

Over the past three years, property prices in Tallinn have risen by almost 50 percent. While wage growth has also been strong, it has lagged behind the rise in real estate prices.

"Combine this with rising interest rates, and the availability of real estate for people has certainly declined. There is less interest and opportunities to buy, but prices will fall when sellers have a greater need to sell, and [at the moment], they haven't," said Rain Leesi, head of investments at asset management firm Avaron.

At the same time, the impact of rising interest rates has not yet been reflected in buyers' behavior, as many current sales were agreed six months ago when interest rates were still low.

"Usually, you have to wait a while before it takes effect, because people have some savings and some ways of covering the increased costs," said Tõnn Talpsepp, economist at Tallinn University of Technology (TalTech).

While prices remain stable for the more expensive and cheaper apartments, it is those in the mid-range are more prone to fluctuation.

"In the good times, the prices have often been quite high. Or the reason why the price itself is coming down on the seller's initiative, is simply because there is no interest," said Risto Vähi, analyst at real estate agency Uus Maa.

Although people's purchasing power has fallen, unemployment remains low.

"In the context of falling real estate prices, we have not yet seen any negative factors in the form of rising unemployment, which could start to pull prices down sharply," said Talpsepp.

Prices of new apartments have  slightly in some areas, but there are also others, where they remain stable. There is no oversupply on the market, as there are fewer new developments for sale than before. Inflation is also have an impact, with the cost  of building materials having increased significantly in recent years.

"There will always be people in the market, who need to buy property for whatever reason. Whether that's moving to Tallinn from elsewhere or other family circumstances, which force people to change their place of residence," Leesi said.


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Editor: Michael Cole

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