As 2020 approaches, there are few major bureaucratic processes left in Estonia that even now cannot be done online. Getting married is one — closing on a home is another. Despite this, thousands of non-locals are buying real estate in Estonia, among them Finns, Russians, and even diaspora Estonians. ERR News spoke with representatives from banks, real estate agencies, the Ministry of the Interior and a few buyers themselves about what the process of finding home, sweet home in Estonia looks like.
When Maret* packed up the last of her things and moved to Estonia earlier this year, it wasn't for the first time.
Herself the daughter of Estonian refugees born and raised in the American diaspora, Maret had lived in Estonia previously, where she had also raised her children.
"After 15 years back in the U.S., changes in that country, in addition to my own early retirement and the desire to make changes in my life, I decided to pursue a dream and buy a farm in the countryside," she told ERR News.
Maret purchased a farm in Viljandi Municipality in late September 2018, an outbuilding of which was renovated while she spent one last winter back in the U.S. She found the listing for the farm on kv.ee, a popular online real estate portal, and negotiated the purchase via a real estate agency. Even the outbuilding she now calls home "was designed and built via [Facebook] Messenger" in cooperation with her builder and his crew.
It was necessary, however, for her to be present in person to complete the real estate purchase, a process which in Estonia takes place at a notary's office.
How did the legal process compare to real estate transactions in the U.S.? According to Maret, in Estonia, the buyer seems to have less representation of their interests in the process.
"I was fortunate to have a very strong, detail-oriented notary complete the two contracts needed to complete the transaction," she recalled. "While chosen by the seller via the real estate agent, she made comments and mentioned options that would better protect my interests. In hindsight, I would have involved a lawyer or notary who represented just me in the process."
Matter of national security
As of this September, foreign nationals and stateless persons accounted for 7 percent of owners of immovable property in Estonia, including 8,686 stateless persons and 14,674 foreign nationals, according to data available from the Centre of Registers and Information Systems (RIK). This figure does not account for diaspora Estonian owners, who typically have Estonian citizenship.
Unlike Estonian citizens, however, some foreign nationals face restrictions on where in Estonia they may even buy real estate, whether the property in question is a house, an apartment or a farm.
These restrictions arise from the Restrictions on Acquisition of Immovables Act (KAOKS) — specifically, Chapter 3, § 10, which addresses restrictions on the acquisition of immovable property — i.e. real estate, including assets that cannot be relocated or transported without significant alteration or destruction, such as a house, barn, or swimming pool — arising from national defense reasons.
According to this law, any natural person who is not a citizen of a contracting party to the European Economic Area (EEA) Agreement or any legal person whose seat is not in a contracting party to the same is prohibited from acquiring immovables within the Dec. 31, 1999 boundaries of specific listed areas, which include all sea islands except Saaremaa, Hiiumaa, Muhu and Vormsi, and a swath of territory along Estonia's eastern border that runs roughly from Narva-Jõesuu and the Gulf of Finland in the north to the southeasternmost stretch of modern-day Setomaa Municipality in the south.
As confirmed by Ministry of the Interior communications adviser Pia Kuusik, the wording of this legislation took into account possible future changes to the name or boundaries of these areas, and so the restrictions remain in place even after the 2017 administrative reform which redrew much of the Estonian map.
"When considering borders, current law continues to apply, i.e. § 10 of the Restrictions on Acquisition of Immovables Act," Kuusik told ERR News. "This [law] was not changed in the course of the administrative reform."
This means that although Kristiina's* family has Estonian roots, because she lacks Estonian citizenship, she would not be able to buy a farm in Mehikoorma, located on the coast of Lake Peipus in Räpina Municipality, even if her roots could be traced back to that area. Although the administrative reform saw changes in borders in that part of the country, Mehikoorma, which changed not only municipalities, but altogether counties, still falls within the restricted areas as outlined in § 10 of KAOKS.
In Kristiina's case, however, she is only looking at apartments in Tallinn, to which these restrictions do not apply. She has already been involved in the purchase of two apartments in the capital city, but is now on the hunt for one of her own.
"The first apartment bought together with my parents was for all of us to use as a vacation home on visits to Estonia," she said. "When they retired, they decided to buy a bigger apartment to live in part time during summers; I am also a partial owner and use it as a vacation home."
She is interested in buying her own apartment now, to likewise use as a vacation home and possibly rent out either on Airbnb or to a longer-term renter before moving there herself one day after retirement.
While the first two apartments were purchased in cash outright, Kristiina acknowledges that this time around, figuring out finances for the purchase of her own place is currently the biggest difficulty she is facing.
"Most Estonian banks I've looked at don't seem to welcome foreign clients without ID cards, Estonian personal identification codes, residence permits or any income in euros for mortgages, while American banks don't offer mortgages on property overseas," she said. "Saving up money takes a long time. I'd love to find a bank that welcomed foreigners for mortgage loans."
Kristiina mentioned that she has heard that getting a home loan is easier to deal with in some other Eurozone countries. "For example, a friend in Spain says that banks there will easily approve home loans of several million euros to foreigners."
Loans and legal status
From the banks' perspective, one's citizenship, legal status in and ties to Estonia all play a key role in whether or not they will even issue someone a home loan.
"SEB issues loans to Estonian citizens and to foreigners with ties to Estonia, such as in cases where the client's spouse or partner is an Estonian citizen or they work in Estonia, and to those who have been issued long-term residency permits," said Evelin Tammearu, business development manager for SEB's private clients.
According to Tammearu, for qualifying foreigners, the conditions of the home loan are more or less the same as for Estonian citizens, with the exception of a larger required minimum down payment — 40 percent instead of the usual 20.
Applicants who have been issued residence permits of indefinite duration are able to qualify for home loans under the same conditions as Estonian citizens.
The story is much the same at the Estonian capital-based Coop Pank, which will issue home loans to Estonian citizens, permanent residents of EU member states as well as either long-term or temporary residence permits. The latter comes with a catch, however.
"In the case of non-Estonian citizens, their ties to Estonia — in the form of a family member, property or business — are important, as is one's down payment, naturally," explained Karin Ossipova, head of mortgage lending at Coop Pank. "In other words, we assess how great the borrower's interest is in the property in question."
Stateless persons born in Estonia are eligible for loans under the same conditions as Estonian citizens, but as is the case at several banks, when it comes to temporary residence permit-holders, the loan term corresponds to the term of their residency permit, which can be extended when one has their residency permit renewed.
"Where possible, we ask [the borrower] to include a family member who is an Estonian citizen when signing the contract, in which case the loan term can be up to 30 years in length," Ossipova said.
Estonian bank LHV said that the same conditions are applied to foreign and Estonian citizen loan applicants alike, and that once a foreigner has completed onboarding, i.e. become a client of the bank, then they are eligible to apply for a home loan.
"The main thing we monitor is the period of validity of third country citizens' residence permits, and that same period of validity also becomes the term for the home loan," Marko Kiisa, head of retail lending at LHV, told ERR News. "This loan term is automatically extended upon the presentation of one's new residence permit, but should one leave Estonia and their residence permit not be extended, the loan must be repaid."
Swedbank, meanwhile, is willing to finance borrowers with clear solvency and for whom monthly mortgage payments will be clearly manageable in the long-term.
"Generally speaking, those who don't actually live in Estonia on a daily basis tend to buy real estate here using their own resources," Swedbank private loans specialist Anne Pärgma said.
"One reason for that may be the fact that it is rare for loans to be issued to borrowers whose connections to Estonia are on the limited side," she added.
'We speak your language'
While the paperwork involved in real estate transactions is generally drawn up, signed and notarized in Estonian, buyers from all over the world have purchased real estate in Estonia, and many real estate agencies, for example, offer their services in several foreign languages.
Ingmar Saksing, board manager and licensed real estate agent at LVM Kinnisvara, said that his agency offers services in Estonian, Russian, English, Finnish and German, and since 1992 has had clients from nearly 100 different countries.
According to Saksing, the most common foreign buyers to this day remain Finns and Russians, who combined account for half off agency thereof, as well as Swedes, Germans and Brits. Chinese buyers also account for a greater degree of buyers, he added.
"Over the years, we have concluded thousands of sales contracts," Saksing said. "The ratio of foreign [to domestic] buyers was bigger in the 1990s and 2000s. From 2015-2019, the number of non-resident buyers has remained stable, falling between 5-7 percent of all of our clients depending on county and asset class."
He also noted that while foreigners were initially primarily the ones buying, circumstances have since changed and foreigners are also selling property as well by now.
"The greatest degree of interest from individual foreigners was between the years of 1992-2002," Saksing said. "The number culminated in the early 2000s, accounting for nearly 20 percent of our real estate transactions in the apartment segment."
According to the LVM agent, foreigners' share in the number of buyers began to fall again beginning in 2003, reaching a low point in 2009, since which time the indicator has continued to show stable growth, largely hovering between 3-7 percent.
According to Leanika Järve, training manager and Tallinn office director at Arco Vara Kinnisvarabüroo, the main difference between real estate transactions with Estonian citizens and foreigners is that the transactions are more expensive and time-consuming in general for the latter, especially if the buyer is hoping to finance the purchase via home loan.
"Many banks won't finance even Estonians working abroad if they are not paid in euros," Järve said, noting that anti-money laundering legislation has meant tougher restrictions as well.
Interpreters are also sometimes needed at the notary's office to ensure that both the buyer and the seller involved fully understand everything.
Kristi Djomin, real estate agent for Central Tallinn and Old Town at Uus Maa Kinnisvarabüroo, said that her agency provides services in Estonian, Russian, English and Finnish, and while all official contracts are in Estonian, they also provide English-language copies as well.
"People are buying homes and investment properties," Djomin said. "Finns often buy second homes. There have also been cases in recent years where people visit Tallinn and they end up liking the city so much that they buy an apartment here to use as a vacation home."
This was precisely the case with Beverly*, who is still on the hunt for the right three-room apartment, ideally in Tallinn's Kalamaja or Kadriorg neighborhoods.
"I have a wonderful friend who suggested I come," she recalled. "I did, I loved it, and I made wonderful new friends. I wanted to avoid the search for an open-ended short-term and affordable apartment when I return in spring, which I intend to do frequently. I thought an apartment of my own would be a good solution."
While she had already come close to buying once, Beverly ended up backing out of the deal after having second thoughts about a place that didn't have enough of the amenities she was looking for to justify the price.
"Most people spoke adequate English, but the process still felt overwhelming at times," she said. "In the case of other homes I have bought elsewhere, there was more give and take in the final settled-on price. My experience here was initially friendly, then became petty, then dismissive, ultimately with no closure after I apologized profusely for changing my mind."
What would be helpful moving forward?
"I looked enough to know pretty clearly what I want and where, but I still need a dedicated guide to help me muddle through the system," Beverly noted. "I felt it was daunting, even though I had someone helping me who had no official title. There were many unforeseen questions that I never felt I completely understood."
At least some real estate agencies in Estonia do already offer extra services for foreign clients.
If a client is currently abroad but has found a suitable listing online, for example, according to Djomin, Uus Maa has even conducted video tours of apartments and handled various related matters via Skype.
It is in fact also possible to legally authorize a real estate agent to represent the buyer in the purchase transaction.
"That has come up when a suitable apartment has been found but the client themselves has to return home," Djomin said. "In that case we have completed the transaction on their behalf."
The real estate agency also offers assistance when it comes to communicating with banks, as well as with managing the rental of the new apartment, if it was purchased as an investment property.
"We will represent the client in Estonia, if they so desire," Djomin added.
So while one still cannot yet buy a home in Estonia without at least a legally authorized representative showing up in person, much of the process can nonetheless be done online, if needed. That's good news for potential homebuyers worldwide.
Editor: Aili Vahtla