LHV's recent decision to finance the construction of rental apartment buildings is very positive news, Palo told BNS.

"By establishing rental apartment buildings meant for local municipalities, we have managed to set a good example for the private sector and send a message that there is potential for them as well, and that it is possible to increase profitability with new business models — in the case of banks, by investing in new asset classes," she explained. "I see that the state and the private sector can cooperate here by cofinancing investments through Kredex as well."

LHV announced on Friday that the company's pension funds, in cooperation with Lumi Capital OÜ, have decided to invest in the construction of rental apartment buildings in Tallinn. In the first stage, two rental apartment buildings housing 127 one-, two- and three-room units are to be built in the Manufaktuuri quarter of Tallinn's Põhja-Tallinn District. The buildings are also to have a parking garage and large courtyard, and are set to be completed in 2019. The long-term goal of LHV and Lumi Capital's joint investment strategy is to build 500 rental apartments in various residential areas of the capital city.

Mihkel Oja, CEO of LHV subsidiary LHV Varahaldus, said that for the pension funds, it is a long-term investment which is well guaranteed. "The goal is to own and manage rental apartments to earn rental income," he said. "This year, we have already made investment decisions regarding Estonia worth €100 million. We consider it realistic that pension funds will make investments worth €1-2 billion in Estonia over the next five years. Some of that money will be invested in real estate."

While the concept of rental apartment buildings owned and managed by one owner ha been successful in Western Europe as well as in, for instance, Finland, it is the first time such a concept is being tested in Estonia.

Investors of the investment strategy are pension funds managed by LHV Varahaldus, while the investment will be managed by Lumi Capital, which also seeks out suitable projects.

At the beginning of June, Palo sent out a bill according to which local governments would be supported in the development of rental apartment buildings. This year, €2.5 million would be divided between local governments; Tallinn and Tartu would be eligible to apply for the support beginning in 2018.