Published on 01 November 2005 at 05:05 pm
Filed under: Europe:- Estonia Property Guides » Estonia Property Investment Guide
Property investment interest in Estonia is currently centered upon the capital city of Tallinn where substantial profits and steady rental yields have already been recorded.
The attraction of the property market in general in Estonia is centered upon the fact that the Estonian economy is doing incredibly well and that both local and overseas demand for quality housing stock to buy and rent is beginning to outstrip supply.
The profitability of Estonia from a property investor’s perspective was obvious even before the country joined the EU back in 2004. Because Estonia was attracting significant foreign investment as a direct result of its close business ties with Finland, Germany and Sweden, so domestic purchasing power was increasing and demand for accommodation to rent and buy was increasing.
This now means that property in Estonia’s capital city is relatively expensive and in line with western prices; the most expensive area is the city’s old town known locally as Vanalinn, and the further out from Vanalinn that you explore the more you can buy for your money. But property investors should not be put off by the fact that prices in Tallinn are already strong. Property prices are continuing to rise and rental rates remain steady and attractive.
It would be wrong to claim that Estonia’s property market is emerging however, because in Tallinn it has already emerged and begun to flourish! Elsewhere in Estonia international investor interest in property has yet to take off. There’s undoubtedly potential along the beautiful coastline, but investment in this area is in its infancy.
The best bet seems to be to target the professional market in Tallinn. Options available include purchasing apartment accommodation to let out as close to the old town as you can afford and at a price that will allow you to achieve a decent rental yield, or purchasing brand new off plan apartments and houses and flipping them as they come to completion. This is because local buyers remain wary of purchasing off plan in Estonia and prefer to buy something in the final stages or completed. An investor who targets this market angle can make faster profits potentially than one who waits for significant capital growth.
Having said that, capital growth figures in Tallinn are steady and attractive running at around an average of 10% annually. A good general future price guide indicator is the construction index which is currently increasing in Estonia. The reason the construction index gives a fair indication that prices will continue to rise is because a rise in the cost of construction will always be passed on to the buyer in the form of a rise in the underlying purchase price - this is however not an exact science so be careful!
Another reason why prices are predicted to continue rising is because demand for property to purchase in Tallinn is beginning to outstrip supply. This results from a number of intrinsically linked factors: -
Firstly, since Estonia joined the EU in 2004 the country has benefited from massive EU infrastructure grants; this money has been wisely spent on improving telecommunications and accessibility for example, and has fairly directly resulted in over 250 international companies establishing bases or headquarters in Tallinn.
These companies have chosen Estonia to take advantage of the country’s strategic position, its well educated and affordable work force, its flat tax rates and investor incentives and they have created vast employment opportunities in Estonia as a result.
These employment opportunities have fulfilled domestic demand for well paying jobs which has increased local purchasing power meaning that more Estonians can now afford to buy property.
The employment opportunities available in Tallinn have also attracted overseas professionals to Estonia which has increased the city’s population and again increased the numbers of those willing and able to buy property in Tallinn.
The final factor in this whole demand/supply situation is the fact that the mortgage market in Estonia has just taken off. The availability and affordability of mortgages and home finance has appeared almost overnight and the terms and conditions of borrowing are so attractive that overseas and local buyers are cashing in on the chance to buy property in Tallinn.
Estonia’s capital city of Tallinn therefore represents a very well established yet relatively young real estate market opportunity for overseas property investors. The potential for property investment opportunity elsewhere in Estonia obviously exists but the profitability potential is most definitely long term.
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