Published on 14 January 2006 at 02:44 pm
Filed under: Europe:- Estonia Property Guides » Estonia Investment Property Buying Process
Despite the fact that freehold ownership of real estate in Estonia has only been possible since the end of Soviet occupation, the property buying process in Estonia is well established, straightforward and inexpensive.
More positive features that help define the appeal of the investment property market in Estonia are that mortgages are now available for foreign buyers, and those who wish to own more than one property and who purchase through an Estonian limited liability company can save significant tax on profits and gains.
The majority of properties being sold to investors and foreign buyers are brand new and off-plan apartments and houses. This is because the old Soviet style housing requires significant investment to bring it up to modern standards and those who actually wish to live in cities like Tallinn want new, well constructed and finished property.
Therefore a property investor’s target market of either tenants or first time buyers are demanding properties that have been built using the latest construction methods and also using modern materials such as triple glazing and quality insulation, so it is wise to buy new or off plan to have the accommodation units most in demand and most likely to generate the best profit margins.
The construction period for off plan property in Estonia is usually between 12 and 18 months which gives an investor plenty of time to finance the purchase. This is just one benefit of buying investment property preconstruction and an additional major benefit is that by buying today you are securing your investment at today’s prices and you will benefit from market expansion over the build duration and be able to resell upon completion - if you so desire - and take all that capital gain as profit.
To buy off plan property in Estonia it’s usual to pay a small holding deposit for whichever unit the investor desires and then to sign a reservation contract - this is like a preliminary contract as it has the terms and conditions of the sale included in it. Once the reservation agreement has been signed, between 10 and 20% of the final purchase price has to be paid.
Some developers request small stage payments throughout the build process with the majority payable upon completion; others simply require the balance upon completion. Therefore because the majority of the purchase price is paid on completion it is always in the constructor’s best interests to finish on time and to complete the property to the highest standards. Once a property has been completed the buyer has a certain window of time in which he has to inspect the property and when all is found to be in order the purchase contract is signed.
This has to be signed in person in Estonia in front of a public notary. As soon as it is signed the balance has to be transferred to the property developer via the notary and within a month the stamp duty has to be paid by the purchaser. The purchase agreement will not be released to the property investor until the stamp duty has been paid.
The stamp duty is a small sum of money and the only other additional costs associated with buying investment property in Estonia are 0.5% of the purchase price for the notary’s fees, 0.25% of the purchase price for land registry fees and around GBP 70 - 100 for translation fees so as you can see the property buying experience is relatively cost effective!
Please note however that Estonia does has a land tax that it levies annually, but it only ranges from 0.2% to 0.7% depending on where exactly a property is located.
In terms of buying more than one investment property, many experts advise the real estate investor to set up an Estonia limited liability company which can be done easily for a fee of around GBP 750. By owning properties through such a company structure the investor can deduct expenses from any taxation liability and also an investor need not pay any tax on profits and income until the company’s profit is actually distributed. Even then the tax rate is currently only 26%, so if an investor cleverly reinvests all profit back into the company he need never pay any tax!
And finally, recent developments in the mortgage market in Estonia mean that foreign buyers can now raise finance to purchase property in Estonia and benefit from the country’s low interest rates. To be eligible for a mortgage in Estonia an investor has to be able to prove annual earnings in excess of GBP 20,000 and also be willing and able to pay a deposit of between 20 and 40% of the property’s value.
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