Apartments' price advance seems to be slowing in Tallinn, with the gap with the rest of Estonia closing. Real estate has become more active in Tartu.
A market overview by Swedbank suggests that price advance is slowing on the Tallinn apartments' market and the price difference with the rest of the country decreasing.
Around 2,000 apartments are sold in Estonia every month, with 43 percent of all transactions taking place in Tallinn.
By Q2, the price gap between Tallinn apartments and the rest of Estonia had fallen to 2.3 times. The difference was 2.5 times two years ago and over 2.6 times in late 2014.
Kesklinn (Central Tallinn) square meter over €3,000
Apartments' price advance is forecast to stay close to last year's level or even slow down. Tallinn apartment prices climbed 5 percent in the past half-year. Price advance is fastest in the Kalamaja urban region in the Põhja-Tallinn district where prices often surpass those of apartments in the city center.
The first half-year's average offering price was €3,050 per meter squared in Kesklinn (up 4 percent from €2,933 last year), €2,862 per meter squared in Põhja-Tallinn, €2,706 in Kristiine and €2,2367 in both Mustamäe and Lasnamäe.
The average price of apartments is affected by the relative importance of new developments as their square-meter price is 25-30 percent higher than that of aftermarket real estate. 27 percent of all Tallinn transactions were made with new apartments in the first quarter of 2019, with last year's total at 30 percent.
Strong salary advance, consumer confidence and availability of loan money have kept the Tallinn new real estate market active. While most new developments go up in Kesklinn (28 percent), it is not reflected in sales statistics. Only 19 percent of transactions involving new developments were made in Kesklinn in the first six months of the year.
The average new real estate offering price in Tallinn and the near vicinity grew to €2,693 in the first half-year. Last year's average was €2,622 per meter squared, good for a price advance of 3 percent.
Supply spike in Tartu
Available real estate has exploded in the city of Tartu in the past year. Growth began in Q3 of last year when the number of active offers jumped from 275 to about 450. After a brief decline, with the number of offers still surpassing previous years, the figure jumped to 720 in Q2 of this year, making for a growth of 2.5 times since Q2 year-over-year.
The spike is not equally represented in sales figures, while growth is volatile from one quarter to the next. The first quarter of 2019 saw 80 transactions (ca 440 offers), while Q2 saw 200, with offers numbering 720.
Housing becoming more affordable
General real estate price advance slowing could be attributed to net salary advance that is also down in 2019. Real income grew as a result of Estonia's income tax reform last year, but the effect was one-off. Slowing real net salary advance could start to affect housing demand. Households' confidence in terms of real estate acquisition is down compared to the end of last year.
Slowing salary advance is also having an effect on construction prices. Developments offering the lowest prices are performing the best, while medium and large companies rule the market. Few developers are having liquidity problems.
The volume of housing loans is half of the pre-crisis level, while home loans have made up, on average, 56 percent of all real estate transactions for the past five years.
All in all, apartments have become more affordable, compared to net salary, which development has been helped by low interest rates. Recent European Central Bank decisions suggest rates will remain low for some time to come.
Editor: Marcus Turovski