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Learning to appreciate the value of roads

  • 2003-10-30
  • By Roxanne Khamsi
RIGA - As leaders of the Baltic states continue to express their support for infrastructure development, real estate developers anticipate continued expansion and improvement of road networks in Estonia, Latvia and Lithuania and a resulting boost in property values, particularly where the new roads materialize.

Areas surrounding cities such as Tallinn, regarded as ideal locations for production and warehousing sites, will see a significant increase in value, according to Hindrek Leppsalu, managing director of the Estonian agency of the real estate company Ober-Haus.
The enhancement of routes connecting these areas to the cities will make them suitable locations for new manufacturing facilities, he says, adding that EU investors will look to these outlying areas first while assessing project costs.
Leppsalu is adamant: road construction in the Baltics can "easily double or triple" the value of property in some areas.
Tonu Soodla of Mergo Holding OU, the developer behind the new Tanassilma technological village located approximately one kilometer outside Tallinn, follows road rules closely.
He explains that although the Estonian government will provide financial assistance to a company requesting money for the improvement of road infrastructure, the state does not offer the same direct funding help to real estate developers.
Soodla says that in the 30-acre technological park the construction of three kilometers of inner roads – all privately funded – costs about 500,000 euros.
He states that the traffic intensity of the nearby state roadway will increase as companies move into the so-called technopark and increase their business activities there. As a result, he anticipates a need for further infrastructure expansion.
"The state is now a step behind us," Soodla says, adding that his group is now considering helping the Estonian government build an additional 800 meters of road that will connect the property to the main Parnu-Tallinn highway.
In Riga, plans to build a new bridge across the Daugava River have piqued interest of property buyers and developers.
"Already we can see that all around those places companies are trying to get property in that area near the potential bridge," says Viktors Saums, director of Arco Real Estate in Latvia.
Tonu Toonpark, a real estate market analyst at Eeri Real Estate, describes a trend in which Estonians are willing to live farther away from city centers – a change that influences traffic patterns.
"People are willing to move 50 kilometers away from the center of Tallinn. Years ago this number was 30 kilometers," he says.
Despite the obvious benefits, road development, as Toonpark points out, does not always bear a positive impact on surrounding real estate.
"Big roads can decrease the value of [adjacent] houses but increase the value of offices," he explains.
Inexperienced buyers are vulnerable to making poor decisions when it comes to purchasing land far away from developed roadways, says Soodla. As an example, he recalls that recently there were publicized instances in Estonia in which people were duped into believing that certain dirt roads would be paved with asphalt and subsequently paid for property in the middle of nowhere. Only later did the tricked buyers find out that no such improvements had been planned.
The impact of EU funds for new roads is also emphasized by Ain Kivisaar, a property analyst at Uus Maa, an Estonian firm involved in real estate evaluation and property management. He warns that farmers in remote areas with lots of land may have expectations that are too high with regard to property value increase and road development.