Competitors: YIT's price cuts will not cause real estate prices to fall

Property developer YIT cut the price of all its apartments by 16 percent, but both Merko and Liven say that this will not be followed by widespread discounting campaigns by other developers, and that the market is rather picking up.
A look at the new developments section of real estate portals shows that developers are going to great lengths to attract customers by offering them various benefits. For example, some apartments come with a kitchen, others with cooling, a parking space or a storage room, and there are also some apartments that offer buyers a discount of €5,000 or €15,000 on client days to furnish them.
Business daily Äripäev wrote on Wednesday that real estate developer YIT, in an unusual move, lowered the price of all its new apartments by 16 percent in order to boost sales of ready-made apartments in its development projects in Tallinn and Tartu.
Indrek Tarto, a member of the management board of Merko Homes, told ERR that in the case of YIT it is first and foremost a promotion campaign with a nice title.
"All of the developers are running campaigns, but this is the one that has gotten the most traction so far," he said.
Tarto said that one company's write-down does not mean that it will be followed by big sales across the board and big discounts from other developers.
"Sure, these campaigns are tied to specific locations and products. You can't talk about a general thing, maybe there's a lot of products on the market somewhere and you need to do something about it," he said.
There are a lot of new developments in the Haabersti area, including YIT's, and according to Tarto, this is the area with the most standing inventory that market players are trying to get rid of.
"It certainly depends on the developers who are better equipped and better managed financially, they don't need to do this kind of thing. But the smaller ones and those who are under more pressure to borrow can do it," Tarto said.
Andero Laur, the acting manager of developer Liven, which also sells apartments in Haabersti, said that YIT's prices used to be much higher than those of other developments, and after the price cut they're now similar to those of competitors.
"They've adjusted the prices to market levels, it's a good campaign, it's getting a lot of attention," he said. "It will definitely bring them customers, because before they were rather expensive compared to others, and then it is very difficult to find customers."
Laur confirmed that it is more difficult to sell apartments in Haabersti because the supply is much higher than the demand. "Liven has adjusted prices in the region several times in the last year and a half," he added.
Now prices are competitive and sales are happening, he said.
Tarto said that people are definitely price-sensitive at the moment, but when buying a home, in addition to price, location, infrastructure, accessibility, environment and many other aspects are also important. He predicted that YIT's campaign will bring a lot of people to look at the apartments, but it is difficult to predict how many of them will be sold.
Tarto doesn't believe that YIT's price cut will lead to major changes in the real estate market. He pointed out that the situation today is somewhat different from the last major economic crisis, as banks do not have a lot of bad loans.
"Especially since things are still moving in the right direction: housing is becoming more affordable by the day, the euro interest rate is falling, and people's confidence is starting to rise," he said.
According to Liven's chief executive, there is also a certain optimism in the market: there is some improvement in consumer confidence and fears of higher unemployment have not materialized. Laur emphasized that the number of transactions in new developments this year is much higher than last year.
"There is a noticeable upturn," he said.
The Bank of Estonia says real estate sector has held up well
The current protracted recession is exceptional in that it is usually accompanied by problems in the real estate sector, but there are no significant problems in this sector in the current downturn, according to the Bank of Estonia's latest financial stability review.
According to the central bank, the recession and higher interest rates have made it more difficult for Estonian companies and households to repay loans, but the share of non-performing loans is still low compared to previous recessions.
Loans overdue by more than 60 days are currently so low that they account for 0.3 percent of the loan portfolio, compared with 7.5 percent during the 2008-2009 crisis.
Estonian banks have few nonperforming loans for many reasons, according to the analysis. Previous good years and buffers have helped companies handle larger borrowing repayments. Savings, low unemployment, and income increases have kept households stable.
The relatively good performance of the Estonian real estate sector also played an important role, as Estonian banks lent significantly more to the real estate sector than in other EU countries, the Bank of Estonia reported. "Real estate companies are generally considered to be riskier than average because of their greater reliance on debt financing. In Estonia, however, real estate companies have been able to cope with increased interest rates and other costs because they have been able to generate a sufficiently high return on their real estate investments and pass on some of the cost increases to their customers."
In addition, the real estate companies have had plenty of financial buffers, and the banks have been lending to them on fairly conservative terms.
The Bank of Estonia expects the level of non-performing loans to rise slightly in the near term, despite the expected economic recovery, as difficulties in repaying loans often occur with a time lag.
Estonian banks remain sensitive to threats from the Swedish economy, and if Swedish banks were to experience difficulties, the supply of credit in Estonia could be also reduced.
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Editor: Kristina Kersa