small-home

Small Flats Attract Both Home Buyers, as well as Rental Property Investors

According to the data of the Statistical Office, a total of 2264 residential properties were built in Tallinn in 2016. Only 6% i.e. 133 of these properties built were one-room flats. 850 of the properties i.e. 38% were two-room flats, while 35% or 790 properties were three-room flats. 22% i.e. 491 of the residential properties built in 2016 were flats with four rooms and above

This shows that the residential property development process in Tallinn is clearly skewed towards two- and three-room flats. Such predominance of flats with smaller number of room is caused by better liquidity of flats of such size, i.e. the estimated shorter selling period. A shorter selling period allows developers to exit from the project within an optimum period of time and keep their risks at a controllable level.

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Dos And Don’ts When Letting Out Rental Property In Tallinn And Estonia: Part Two-The Don’ts

Following on from our article yesterday in which we outlined what you should do when letting out property in Estonia, here as promised is part two, in which we detail the ‘don’ts’…

1) Don’t wait to secure the highest rental rate possible. Profits can be washed out by the additional vacancy time; in addition, market conditions can change rapidly. By the same token, don’t keep rental rates high and accept a high vacancy rate while waiting for market conditions to improve. High levels of vacancy can lead to high tenant improvement costs and free rent as additional concessions due to the market being a tenant’s market. At the time of writing, the rental market is quite buoyant and so obtaining the market rate for your property without a long wait should be viable.

2) Don’t rule out proposedtenant improvements-losing a potential tenant by refusing to make improvements could lead to additional vacancy time.

3) Don’t make the mistake of cutting out promotional work on your apartment as well as search feesas the market tightens again. If you are not competitive in these areas, you risk fewer tours, which will mean less qualified tenants, which could lead to longer vacancy times.

4) Don’t halt refurbishment and improvement plans in a hot market. These plans can take months to develop and come to fruition. Tenants want the level of service and quality of appearance to be maintained over the life span of their lease. This may attract them to stay for another lease term, saving you money. That being said, you should keep your tenant improvement costs as low as possible. It’s a good idea to stay on top of the repair and maintenance needs of your property by repairing or replacing any item that is not functioning as soon after being notified as possible to prevent further damages or tenant dissatisfaction.

5) Don’t impinge on your tenant’s privacy: inform them about any potential visit well in advance and certainly at least 24 hours.

6) Do not leave anything of great financial or sentimental value in a property which you are letting out.

And that’s it! We hope you have found this advice helpful, and we’re waiting to hear your comments, questions or experiences!

Goodson & Red Tallinn Property Consultancy is a premier real estate service in Estonia, specialising in residential and commercial Tallinn real estate, with a strong focus on consultancy services for overseas property investors in Estonia. Our recent media accolades include mentions in both the UK quality newspaper the Daily Telegraph, and the New York Times.

 

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Dos And Don’ts When Letting Out Rental Property In Tallinn And Estonia: Part One – The Dos

Following hot on the heels of our recent posts on where to buy in Tallinn, Estonian real estate terminology getting lost in translation, and top tips when buying in Estonia, all of which we hope you’ve found helpful, we thought we’d continue on that trajectory.

This time, the topic is letting out properties. So here are the main ‘dos’ when letting out an apartment here or, for the most part, anywhere:

Many people become a ‘landlord’ in Estonia or elsewhere for that matter with little knowledge of the realities of what the process involves.

Even if you are an existing landlord already, you can never have too much advice, and there may be some differences between Estonia and wherever you hold your other properties.

A lack of knowledge about being a landlord can lead to such unwanted scenarios as unexpected expenses, void periods or problem tenants.

To help you avoid any of these undesirable situations, here are some of the most significant do’s and don’ts when letting out property in Estonia.

Do…

1) Make your property as appealing as possible to potential tenants (neat and clean, in order, decorated). If the property was formerly your personal home or part time home, or contains fixtures and fittings left over from a former occupant, be prepared to make the necessary internal alterations in order to successfully attract a tenant. One’s own personal tastes may not match with those of other people. Experience has shown that tenants on the whole prefer light, neutral colours and modern, contemporary (but not too extreme) fixtures and fittings. Time to get rid of that lime-green ceiling or novelty lampshade! ‘Minimal is king’, is a useful watchword here. At the same time, thoughtfully-located and attractive pictures which are in keeping with the overall design of the apartment can make all the difference, as can a few well-placed mirrors. Plants also make a huge difference, although naturally there is the issue of getting tenants to water them once an agreement has begun. The property should also be wisely furnished (e.g. take away unnecessary furniture pieces, have modern and clean furniture which is in keeping with the property etc.)

2) Steer clear of void periods at all costs, even if this means being flexible about rental levels. This also means you should be flexible in terms of rental periods, for example having a short term let for part of the year and longer terms during the remainder, to maximise profits and minimize void periods. This can have the effect of earning 10-15 per cent more per year. Naturally having a fully-managed service will mean that the hassle of organising this is out of your hands.

3) Consider letting the property out as a part-furnished property. Whilst many tenants may be travelling light or interested in short term lets and therefore more likely to choose a fully-furnished property, some scope for their own additions to the furniture can be attractive. What constitutes essential furniture in a part-furnished property? Naturally beds should be provided in the primary bedrooms at the very least; mattresses should be included only if they are relatively new (ie no more than 4-5 years old) and clean. Sofas and chairs should also be included where necessary, and substantial storage space in particular for clothes (wardrobes, walk in wardrobes, chests of drawers etc) is also a must. Kitchen fixtures and fittings should natrually be included and utensils, cutlery, crockery etc can also be provided inexpensively.

4) Provide as much detailed description of your property as possible. There are two very good real estate portals (kv.ee and city24.ee) which list properties available under quite detailed search parameters, in English and with plenty of photos. Your real estate broker will also be able to advise and guide you through the process of marketing your property.

5) Once you have a tenant, make sure that you have a proper lease agreement in place (certainly ask for a tenant’s documentation; get all the important terms of the tenancy in writing). You should also check the potential tenant’s background if possible (credit info, personal info, family, pets, smoking etc). An agent can advise you on this. It is worth having a detailed inventory compiled. This will be signed by both landlord and tenant, thus avoiding any unpleasant disputes arising surrounding any damage at the end of a tenancy. It should cover not only major items such as any furniture, but also details of the overall qualities of the walls, painted areas, flooring etc to account for any damage that might occur. You might also consider obtaining property insurance to cover for damage, and a security deposit, usually of one month, is also worth getting. It’s worth having an inventory taken (even in unfurnished properties).

6) Consider getting a property professionally cleaned at the end of a tenancy period. This can work wonders in attracting a new tenant, breathing new life into worn carpets and making grubby tiles sparkling again. First impressions last and it would be a shame to put off a potential tenant simply because of an unpleasant odour or dirty bathroom.

7) A certain amount of reasonable wear and tear should of course be expected, so expect it! Over time items will need to be replaced. As a general rule, fridges and other white goods will need to be replaced as they become outdated or cease to work over the years, and a property will need small redecoration works and maintenance works approximately every four years. Wooden parquet flooring also requires attention from time to time.

8) If you are living outside Estonia, it is well worth arranging for a managing agent who will not only find and reference tenants for you, but also draw up contracts, manage the collection of rents, bill payments, see to any maintenance or emergency repairs which may arise, advise you on any refurbishments that may need doing etc. Keep in touch: your managing agents can advise you about developments at the property, maintenance issues etc, but always respond to emails and queries on this promptly. This will lead to a better relationship with a tenant and an increased likelihood that they will want to stay on.

….and the ‘don’ts’ will follow in a later installment!

Goodson & Red Tallinn Property Consultancy is a premier real estate service in Estonia, specialising in residential and commercial Tallinn real estate, with a strong focus on consultancy services for overseas property investors in Estonia. Our recent media accolades include mentions in both the UK quality newspaper the Daily Telegraph, and the New York Times.

 

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Individuals In The Rental Market Need Tax Exempt Status

At a recent round table meeting of the EKFL (Eesti Kinnisvarafirmade Liidu), an association of Estonian real estate agents, construction companies, developers and other related interests, on 26 October, the question of issues related to tax relief for rental income was raised. The meeting found that, in order to increase transparency and competition in the rental market, measures concerning such tax relief would be necessary.

“Today’s rental market happens to be rather opaque, with activities largely being directed by business considerations from private individual to private individual” said EKFL board member and regular contributor to Tallinn Property Tõnu Toompark.

“This opacity means that rental agreements tend to be either weak or entirely missing” Tõnu goes on, “with uncertainty for both tenant and landlord, and, to be frank, unfair maneuvering regarding taxes”.

As far as taxation goes, there is a grey area in the rental sector which leads to a significant competitive advantage to those landlords who are not paying taxes. The EKFL proposes eliminating this advantage and giving rental housing tax-exempt status, for example for a 10 year period.

“Income tax exemption will reverse the advantage given to the unfair competitive advantage that exists” Tõnu continues. “It will encourage those landlords who want to enter into sound and correct lease agreements and the honest moving of money through bank accounts” Tõnu explains.

Tax incentives can lead to rental offers on new apartments, thus expanding the sector. Currently around 15 per cent of people in Estonia rent their living space; this number can potentially grow towards a level in line with the Western European countries of around 25-35 per cent.

A wider share of the rental market will give all people a better choice of accomodation and facilitate greater mobility of labour. A bigger rental market will also help to keep prices stable and lead to various mini-booms in the rental market.

This proposal for an income tax free rental market is motivated by the situation this autumn, where the supply of rental accomodation is standing at a level of around 30-40 per cent less than this time year ago. This low rate of offers has led to a price ceiling and a certain amount of difficulty in finding accomodation. The EKFL believes that the Estonian economy and real estate market, which the rental market is an integral part of, will be greatly improved when a reasonable level of stability can be forecast.

The EKFL is a network of real estate mediation, development, management and consultants. The EKFL round table is a group of active members who meet on a monthly basis as an effective think tank.

The original press release (in Estonian) can be viewed here.

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Tallinn Real Estate Market Report Third Quarter 2011

We have just been putting the finishing touches to a fresh copy of our quarterly review of the Tallinn property market and the review.

Our latest Tallinn Property and Rental Market Quarterly Review covers all developments in the third quarter of 2011, and as always the review contains a brief look at the Tallinn residential market:

  • situation regarding mortgage loans, consumer security
  • information on average asking and transactional prices
  • current state of the central Tallinn rental market
  • invaluable sample transactions
  • advice on rental business considerations

Get the Tallinn Property Market Review 2011 Q3

We would also very much like to hear your views re the property market. Or if you have any suggestions regarding topics. Please do not hesitate to write or tweet us, or leave us a comment below or on our Tallinn Property Facebook page.

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Do Apartment Ownerships In Estonia Constitute An Enterprise?

The Estonian Tax and Customs Board sometimes seems to use unlawful measures to limit the taxpayer’s right to deduct value added tax (VAT), report Law Firm LEXTAL attorney-at-law Ants Karu and lawyer Margus Reiland.

Obligation to pay VAT usually lies with the seller of goods (e.g. apartment ownerships or immovables). As a general rule the (VAT registered) buyer of those goods has in turn the right to deduct input VAT in cases where it uses the purchased goods to create VAT liable goods or services. This means that the buyer does not generally bear any real tax burden.

However, there are situations where the buyer pays the price (including VAT) demanded under the contract, but the seller does not pay VAT to the state. In these cases the buyer must keep in mind that the Estonian tax authority has a strong interest in limiting the buyer’s right to deduct input VAT.

According to the logic of VAT, the buyer’s right to deduct input VAT should not depend on whether or not the seller pays VAT to the state (this principle does not apply in exceptional cases, such as tax fraud or when the buyer has not been diligent).

However, the Estonian tax authority has recently made several attempts to limit the buyer’s right of input VAT deduction using rather creative measures. This generates a substantial tax risk for the buyer. According to the recent decision of the Estonian Supreme Court the Estonian tax authority’s conduct in limiting the right of VAT deduction hat not always been lawful, as we shall explore.

The Supreme Court decided in favour of the taxpayer

The main question of this dispute was whether a group of apartment ownerships acquired by the buyer constituted as a transfer of enterprise. Pursuant to the Value Added Tax Act, the sales transaction of apartment ownerships may be taxable with VAT, but in cases of transfer of enterprise no supply will arise, as a result of which the purchaser has no right to deduct input VAT. The Estonian tax authority was of the opinion that the buyer acquired an enterprise instead of apartment ownerships and the buyer disputed this opinion in court.

The buyer claimed that empty flats do not constitute as an independent enterprise. An enterprise is an economic entity consisting of things, rights and obligations (e.g. workers) and is able to function independently. For example, a factory is considered to be a typical enterprise because it consists of staff, equipment, trademarks and know-how. The Supreme Court agreed with the taxpayer’s arguments. A group of apartment ownerships are simply a body of things, which do not constitute an independent functioning economic entity, that is to say an enterprise.

Summary

The mentioned case may be considered a significant victory for those taxpayers who deal with the buying and selling of apartment ownerships, immovables and similar. The Estonian tax authority’s overly aggressive conduct in limiting the right to deduct input VAT may be unlawful in some cases and should thus be revised.

The authors of this article represented the taxpayer in the referred tax dispute.

Authors:
Ants Karu, attorney-at-law, Law Firm LEXTAL
Margus Reiland, lawyer, Law Firm LEXTAL

www.lextal.ee

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Tallinn Real Estate Market Report First Quarter 2011

Tallinn Property and Goodson & Red are pleased to announce that our latest Tallinn Property and Rental Market Quarterly Review is ready.

Covering all developments in the first quarter of 2011, as always the review contains an in-depth look at the Tallinn residential market, the situation regarding mortgage loans, information on average asking and transactional prices, the current state of the central Tallinn rental market, and also offers invaluable sample transactions and advice on rental business considerations.

In case the link above did not work you can copy and paste the following to your address bar: http://www.goodsonandred.com/sharedfolder/tallinn-property-market/marketreview-tallinn-real-estate-q1-2011-web180411.pdf  

The review comes at an exciting time for us as the company expands to include four highly experienced team members. You can meet our new property consultants and agents at Goodson & Red Property Consultancy site. Whatever your requirements for Tallinn property, Andrew, Kati, Tuuli and Erki are there to help you achieve your aims.

We would very much like to hear your views regarding the Tallinn or Estonian property market. Furthermore, if you have any suggestions regarding topics, please do not hesitate to leave your comment or tweet us, or write on our wall.

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Ten Tips Which Landlords Should Keep In Mind

Why invest in Tallinn and not another European city, particularly in the former Eastern bloc? Well, now is a very good time to consider investing here. Prices are at around a five year low and the rental market is buoyant. Furthermore Tallinn will be European Capital of Culture in 2011, undoubtedly bringing with it a rise in already-high levels of tourism and associated businesses, and Estonia routinely scores higher in corruption indices than its baltic neighbours, for example. Furthermore Estonia joins the Euro zone on January 1, 2011.

But more than all this, the buying process here is quite simple in comparison with some other countries. For instance, it is not necessary for both parties in a transaction, the buyer and the seller, to find their own solicitor and to suffer the inevitable delays, not to mention cost, of paperwork and procedures during this stressful time. Here in Estonia the process is very transparent and it is sufficient for both parties, upon agreeing a sale, to make their way to one of the many competent notaries, who will carry out all the necessary procedures. This takes place with both parties present (together with a sworn translator where necessary) in a short space of time and for a very reasonable fee (including the standard state fee).

Nevertheless, many people become a ‘landlord’ with little knowledge of the realities of what the process involves. Maybe they are moving out of their former home or part time home, but wish to retain it and let it out. Or maybe they invested in property at the height of the boom here in Tallinn. Or perhaps they came by a property through family connections. Whatever the case, a lack of knowledge about being a landlord can lead to such unwanted scenarios as unexpected expenses, void periods or problem tenants.

To help you avoid any of these undesirable situations, here are some important pieces of advice that we will give to any aspiring, or existing, landlord!

  1. Be prepared to be flexible in rental prices. Sometimes a happy situation will arise where a property will immediately be let out for its full asking price, but at other times, particularly when it is a renter’s market, it might be wiser to accept a reasonably reduced offer from a potential tenant rather than hold out for the full amount and carry the burden of a void period for any length of time.
  2. Steer clear of void periods at all costs, even if this means being flexible about rent figures. This also means you should be flexible in terms of rental periods, for example having a short term let for part of the year and longer terms the remainder, to maximise profits and minimize void periods. This can have the effect or earning 10-15 per cent more per year. Naturally having a fully managed service will mean that the hassle of organising this is out of your hands.
  3. If the property was formerly your personal home or part time home, or contains fixtures and fittings left over from a former occupant, be prepared to make the necessary internal alterations in order to successfully attract a tenant. One’s own personal tastes may not match with those of other people. Experience has shown that tenants on the whole prefer light, neutral colours and modern (but not too extreme) fixtures and fittings. Time to get rid of that lime green ceiling or novelty lampshade! ‘Minimal is king’, is a useful watchword here.
  4. Consider getting a property professionally cleaned at the end of a tenancy period. This can work wonders in attracting a new tenant, breathing new life into worn carpets and making grubby tiles sparkling again. First impressions last and it would be a shame to put off a potential tenant simply because of an unpleasant odour or dirty bathroom.
  5. It’s worth having an inventory taken (even in unfurnished properties). This lists in detail all the items which have been left in the property for the tenant’s use, and the condition of the apartment in general. This will be signed by both landlord and tenant, thus avoiding any unpleasant disputes arising surrounding any damage at the end of a tenancy.
  6. Expect a certain amount of wear and tear. This is only inevitable, and over time items will need to be replaced. As a general rule, fridges and other white goods will need to be replaced as they become outdated or cease to work over the years, and a property will need small redecoration works and maintenance works approximately every four years. Wooden parquet flooring also requires attention from time to time.
  7. Do not leave anything of great financial or sentimental value in a property which you are letting out.
  8. Location, location, location: something of a cliche but true nevertheless. Experience shows that the best chance of investing in a successful rental property falls within the central part of Tallinn. This incorporates the old town, the ‘Kesklinn’ (city centre) and to a certain extent the areas of Kadriorg and Kristiine, to the east and west of the centre respectively.
  9. Do think about the type of property you are investing in. Is it likely to be suitable for a student, foreign national or young professional(s)? How old is the building? What are communal areas like? Are there likely to be any planning permission issues? Is there much storage? Is there a parking space? A garden? What are the communal charges? Is it near public transport links, retail outlets and other facilities?
  10. Keep in touch: your managing agents can advise you about developments at the property, maintenance issues etc, but always respond to emails and queries on this promptly. This will lead to a better relationship with a tenant and an increased likelihood that they will want to stay on.

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Slight Fall In Tallinn Property Transactions For October

Tallinn property transactions fell in October in comparison with the previous month, according to Tõnu Toompark’s blog Adaur.ee (available in Estonian only).

Citing figures compiled by Tallinn real estate agents 1Partner Kinnisvara, transactions fell by 12 per cent, from a figure of 482 million Kroons (c. 30.8 million Euros)  in September to 423 million Kroons (c. 27 million Euros) in October. 1Partner’s executive director Martin Vahteri said that activity was particularly noteworthy in the Vanalinn (Old Town) and City Centre areas, where the highest real estate prices are generally to be found. He further remarked that a significant proportion of transactions involved overseas nationals, most notably Finns and Russians. 17 per cent of transactions, a total of 112 objects, comprised foreign investors, he said.

Average price per square metre stood at 15,546 Kroons (c. 994 Euros). The value of transactions of apartments varied hugely, from a reported highest price of 6.225 million Kroons (a little less than 400,000  Euros) to a low of 10,000 Kroons (c. 640 Euros)!  The most expensive transaction on a whole housing unit stood at 11.5 million Kroons ( c. 735,000 Euros). There were foreclosures on 31 buildings in October.

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