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Property prices in Estonia: Latest trends on home prices

Tallinn had the highest prices per square meter in Estonia, at an average of €1,752 for older apartments

Low interest rates have helped fuel the housing market in Estonia, which remains strong. The prices of residential housing remained the highest of all the Baltic States through 2018.

Tallinn had the highest prices per square meter in Estonia for 2018, at an average of €1,752 for older apartments and according to the Estonian Land Board, housing prices rose year-on-year by nearly 9%, to September 2018. New apartments cost around €2,300 to 5,000 per m2 in the city center and €1,500 to 2,200 in the residential areas of the capital.

The national dwelling prices in Estonia rose at a more modest pace of 4.74% year-on-year by Q3 of 2017.

According to Statistics Estonia, the total number of dwellings in the country on 1 January 2017 was 706,000, with an occupancy rate of 76%. Three quarters of the occupied homes, were smaller than 80m2. When compared to national figures of 1922, when the country had 252,000 dwellings, the figures have tripled.

All the other major cities in the country also experienced house price rises, with Tartu Coty (the intellectual capital), the second largest, seeing an increase of 7% to Q3 2917. Parnu City, in the south west, is the popular summer destination in the country and apartment prices rose by 6.05%. The average apartment price throughout the country, excluding Tallinn, rose by 10.63% in Q3 2017, after a year-on-year rise of 7.05% in Q3 2016.

Contributing factors

Purchase contracts increased by 9.3% in 2017, with 51,780 units sold. This was the highest level since 2006. The value of these contracts increased by, 13.5% to €3.24 billion, from 2016. In the same period Tallinn had an increase of purchase contracts of 11% with a value surge of 17.8%.

The figures for dwelling completions also rose by 24, 6% to 5,895 units in 2017. Building permits also increased in the same period by 32%.

Statistics provided by the Bank of Estonia, show that the economy grew sharply in 2017, at 4.4%, the fastest growth in five years.  The economy grew by 3.5% in 2018; and the IMF projects a growth of 3.7% for 2019.

The Bank of Estonia has reported that these figures will drop by 2020 to around 2%. This slowing down will be caused by a decrease in the people entering the labor market, and a drop in the competitiveness of its main exports market.

Rental yields

Rental yields have risen in Tallinn over the last year and remain moderate in Estonia.

The cost to purchase a 40 m2 apartment is € 1,800 per m2, while a 120m2 apartment will cost about €2,200 per m2. The average monthly rentals for the same apartments will be € 384 and € 1.145 respectively.

Gross rental yields for apartments in Tallinn are from 5.3% to 6.3%. Smaller apartment give higher yields.

The Estonian rental market is pro-tenant. Luxury homes are not subjected to rental control, but the Law of Obligations S301, subjects other housing to rental control.

Landlords can ask for up to three months rental deposit.

Even though contracts periods can be negotiated between the landlord and the tenant, the tenant can demand to have the contracted extended for a further three year period thereafter. The tenant can keep demanding repeat extensions and evictions can be difficult. The landlord needs to take extra care that the contract is a solid, specified term contract, which won’t default into an unspecified term one.

Purchasing costs

Non-residents pay 21% withholding tax on their gross rental income. No deductions are allowed nor are personal allowances given. These withholding taxes are final taxes on rental income, and there is no obligation on non-residents to file tax returns.

Capital gains taxes on the sale of property are included into other income which is then taxed at 21%,

Estonia has no inheritance taxes.

Residents are taxed at a rate of 21% which includes their worldwide income.

The total transaction costs for purchasing property are very low in Estonia, and will be between 2.57% and 5.59%. The biggest chunk of this expense is the realtor’s fee of 2% to 4% depending on the apartment purchased. The costs are all paid by the buyer.

Conclusion

Estonia is a small country with a population of 1.31 million. The GDP per capita in 2017 was €17,400 according to the IMF.

Measures taken in the 1990s helped Estonia become the most prosperous of the Baltic States and it was the first Former Soviet Union State to be invited by the European Union to start negotiating its entry. It was formally admitted in May 2004, just a few months after joining NATO. The formal currency of Estonia since January 2011 is the euro.

Its economic expansion has continued since 2000, and the projected growth for 2019 is 3.1%. Unemployment has fallen from 13% in 2000 to 5.8% in 2018 and reforms encourage pensioners to re-enter the labor market. The economic growth is attributed to construction and increased exports.

Average monthly salaries, taken from official statistics provided by Statistics Estonia, were at € 1,202 in Q3 2017, up from€ 1.146in 2016, and € 1,065 in 2015. Wages are driven upwards by the shortage of labor, but as the wages increase so does the inflation rate.

Nationwide inflation increased to 3.4% in 2017 from 0.1% in 2016, and -0.5% in 2015 and -0.1% in 2014. Consumer prices increased by 3.1% in 2018 with a rise of 2.6% projected for 2019, according to the IMF. The rising inflation was caused by higher fuel prices and tax increases implemented in recent years. The effects of these two influences are expected to fade and inflation will drop.

Estonia’s national debt was at 8.7% of GDP in 2017, the lowest in the European Union. This was a decrease from 9.6% in 2016. Surpluses from204-2016 helped Estonia to register a balance budget in 2017.

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Rita Monteiro

Rita – After graduating from NYU with a master degree in history, She was also a columnist for many local newspapers. Rita mostly covers business and Technology topics, but at times loves to write about reviews as well.
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