What goes up must come down, maybe

The real estate markets in Tallinn and Riga have come under serious comparative studies in recent years to determine why they vary so much. Now they seem to be growing even further apart. Prices are dipping in Tallinn and holding steady in Riga. Apartment prices in Tallinn have fallen about 10 percent in recent months, following an increase earlier in the year, according to the Estonian business newspaper Delovije Vedomosti. Riga, which has much higher prices, should also see them level off. Ingrida Drazdovska of Dienas Bizness reports.

Apartment prices in Tallinn hit a record high in 2001, jumping by as much as 50 percent in some districts. Now they're dropping. Estonian experts stress that there is not a crisis in the real estate market - they say what is going on now is only a correction of the market, a stabilization of prices.

Ainars Gulans, director of the real estate firm Realia, said Tallinn's apartment prices will likely drop by another 10 percent by the end of this year, and the market should come alive again because the supply of new high-rise apartment blocks in Tallinn is insufficient.

He said there were no serious reasons for high-rise apartment prices to increase, adding that the jumps could even be described as mass hysteria.

"That is why one should commend the ability of Estonians to wait out the situation and regulate the market, because prices have not been falling chaotically," he said.

Gulans said Estonia's largest credit institutions jumped in as prices started rising and began offering better mortgage deals for apartment buyers.

Also, the home market began to pick up.

"Buyers began to understand the difference between the price of a worn-out high-rise apartment with an unpredictable maintenance term and that of a brand new private house," Gulans said.

Girts Grinbergs, executive director of the Riga branch of the Pan-Baltic real estate firm Ober Haus, said he doubted prices would come down in Riga. Steady mortgage activity should continue and there are increasingly fewer alternatives to expensive remodeled apartments in the Latvian capital, he said.

Others disagree.

Even apartment prices in Riga's suburbs are climbing at a fast rate.

Apartment prices in the Purvciems and Plavnieki districts of Riga, which are now $600 (590 euros) per square meter, will soon be equal to construction costs, Gulans said.

The average price per square meter of apartments in Tallinn is about $500.

"There is no objective basis for a further apartment price rise in these districts as well as in downtown Riga," he said. "Our company's forecast is that prices there will slowly rise during the second half of the year."

Gulans said that might, in turn, trigger a price increase in Riga's more distant suburbs.

"Districts like Ilguciems or Bolderaja could rise dramatically, much faster than elsewhere," said Gulans.

He also said that investors were very active in developing new high-rise apartment blocks. Many will begin to go up by next year and will buttress market supplies.

"My opinion is that developers have to seriously think about the competitiveness of their current supply," Gulans said.

Viktors Savins, executive director of the firm SIA Arko, maintains that price increases in Riga will level off.

"Given that (existing) apartment block's wear and tear and the expired maintenance terms of these buildings, huge investments are needed for their renovation," he said.

He also believes a building boom is imminent.

Like in Tallinn, the prices of existing apartments are nearing construction costs.

"This has prepared fertile ground for the start of a mass construction boom," he said. "The demand for apartments is enormous."

Savins agreed, saying construction might not cause prices to drop, but it will prompt stabilization.

Not only are private developers beginning to capitalize on increased demand and limited supply. Local government authorities are starting to consider building apartments, particularly in Tallinn.