A glimpse inside the Tallinn residential market

  • 2002-09-12
  • Hindrek Leppsalu
There's a relatively good reason to be happy if you're in the mortgage market in Tallinn. The Estonian economy is doing well compared to other economies in Europe. GDP growth for this year is predicted to be 4.5 percent and growth of 5 percent to 6 percent is predicted for the next two years, which has boosted consumer confidence People are ready to lend money to buy real estate because they feel reasonably confident that they will have a job in six months. Local people can take a loan from local banks for up to 30 years with interest rates starting at 6.2 percent and down payment starting at 10 percent.

Because the economy is growing and the average salary is increasing again, several developers have started new projects in the Tallinn city center and in the suburbs. Prices start from 11,000 kroons (667 euros) per square meter in the suburbs and are as high as 35,000 kroons per square meter in old town. Average prices for new apartments in city center are between 15,000 kroons and 25,000 kroons per square meter depending on the location, views and quality of the apartment.

More than 50 percent of apartments are sold before they are completed. In the best cases the sale rate is 80-90 percent. One good example is a project on Tuvi Street in Tallinn developed by Merko. All 80 apartments were sold before they were completed. The demand in the future for city center apartments is expected to remain strong because the number of apartments coming onto the market during the next two years will still be less than expected demand.

Old Town remains in high demand, especially among foreign clients. Supply on the other hand remains low because development costs are high and the completion time is difficult to predict due to myriad building restrictions set out by the city's heritage department.

An increasing number of people are looking to buy apartments in buildings that are completely renovated as they now realize that renovating themselves, including wiring and plumbing, has gotten too expensive. Apartment prices in renovated buildings in Old Town are going for 25,000-37,000 kroons per square meter. Prices in Old Town are expected to increase further during the next three years, following Estonia's membership in the EU when foreign demand is expected to increase.

The dream for most Estonians now, many of whom grew up in the mind-numbing concrete drabness of Soviet housing, is to buy their own home. The prevailing method is to buy a piece of land and build. There are a few projects scattered around Tallinn where developers are building spec homes and selling them.

Building prices now are generally between 9,000 and 11,000 kroons per square meter.

The areas most in demand and which are likely to continue to be popular areas like Nomme, Pirita and Merivalja. Plots in those areas are selling fast for between 700 and 1,100 kroons per square meter.

Up-and-coming areas include Kakumae, Tabasalu and Viimsi, where plots go for 350 to 500 kroons per square meter.

Apartments in new buildings in Tallinn's city center are attracting clients away from older buildings where perhaps only their apartment is renovated while the building remains in a state of disrepair. Other factors like parking, which is being offered more and more as new buildings are erected with garages, are becoming more important.

Rental demand in Tallinn's center has remained relatively constant thanks to fairly stable foreign demand. But more locals too are beginning to look at the center as purchasing power increases. This dovetails with the amount of new buildings. Those renting apartments, even if renovated, are going to have increasing difficulties finding clients and prices will come under pressure from new development.

Rental prices in new center city apartments are in the 140-220 kroons per square meter range.

The demand for Old Town residential units remains high. Demand is buoying prices up to 20,000 kroons per month. Demand falls off considerably for apartments renting for more than that as foreign companies, which make up a large segment of the demand base, are increasingly cutting back on expenses. Average rental prices in the Old Town are about 240 kroons per square meter.