Vahter explained that in stable times, about 2,000 to 2,500 new apartments were built in Tallinn annually. During the construction boom of 2021, over 4,000 apartments were built. When the Euribor rate began to rise sharply in the summer of 2022, the number of new apartments dropped to 1,200. In 2023, fewer than 1,000 new apartments were built in Tallinn.

"The real estate market is very sensitive to interest rates, and when the Euribor was at zero for ten consecutive years and then sharply rose to four, with the final interest rate reaching 5-6 percent, it drastically slowed down the purchasing of new developments," Vahter told "Terevisioon" on Monday.

"By the end of 2022, when the interest rate began to rise sharply, the sales of new developments dropped to 30-40 apartments per month. That's 400-500 apartments on an annual basis. It dropped quite sharply. Now, this number has increased. We are at a pace of 1,000 new apartments per year. We have emerged from this hole," he added.

The executive manager explained that construction of new developments does not start until at least half of the apartments have been pre-sold.

Vahter said that investors have disappeared from the real estate sector. "In Tallinn, the annual rental income compared to the purchase price is about 4 percent, and the loan interest is 7 percent. Naturally, money flows out of real estate into better asset classes. It has not yet started to return, and those investors have disappeared," he added.

Mostly, real estate is purchased for housing, and due to the disappearance of investors, the market is about a third less active.

Vahter noted that new apartments are being bought by people who have not been significantly affected by the crisis. "Someone is always doing well, and the crisis has not affected everyone equally. For example, the energy sector has done well, and the banking sector has seen record profits. Those sectors are the buyers."

The development market in construction is usually a year behind the rest of the economy, Vahter said. "Naturally, real estate that is like inventory surplus gets discounted. The prices have been quite stable."

"You can't offer new things below cost price. You can offer things below cost price that are inventory surplus, and if this inventory surplus is slowly sold off, then new things won't come on. Developers can thus regulate their development pace – before, maybe I built two, three houses a year, now we build one house," he explained.

According to Vahter, banks have been responsible lenders.

"There will likely be developments that fail to sell, but they won't come with the kind of big media frenzy like in 2009-2010. I think there are some developments that are struggling today. But banks have been responsible lenders, and so a big thank you to them for not letting things get out of hand," Vahter said.

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