Statistics: Financing For Residential Real Estate In Estonia Has Dried Up Somewhat

The balance of loans across the various sectors of the real estate market has remained notably stable in recent years, according to Tõnu Toompark on his adaur blog.

The only significant increase in the loan balance has been in the retail sector, Tõnu goes on.

There has however been a decrease in resources for the funding of residential space, Tõnu says.

This decline in the residential loan balance results from a decline in loan sales, which in 2011 came to a total of 45 million Euros.

This is less than several residential development projects’ finance quarterly turnover levels during the boom years, Tõnu says.

The full article (in Estonian) with diagrams illustrating loan balance and turnover, for residential, office, retail, industrial and other sectors, including loans to non-financially regulated companies, is available here.

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Estonian Land Board – Seasonal Drop in Real Estate Sales For January

According to analysis of data concerning property prices and transactions from the Estonian Land Board as carried out by real estate firm 1Partner Kinnisvara, whilst January 2012 saw a 40 per cent increase in the number of real estate deals year -on-year, the number actually went down compared with December 2011.

According to 1Partner Kinnisvara managaing director Martin Vahter, as reported on Tõnu Toompark’s Adaur blog, this comes as so great surprise and is most probably seasonal. “The market is being currently shaped by a lot of different factors that are likely to have an impact, for example the exceptionally cold February weather” explains Mr. Vahter.

“At the same time there have been some good signs” Mr. Vahter goes on. “The winter has seen activity from those Finnish people who wish to invest in city centre apartments” he explains, whilst adding that this activity comes from the purchasing power of a market-conscious group of customers.

685 sale-purchase transactions took place in Tallinn in January 2012, which is nearly 25 per cent less than December 2011. The total value of deals fell by 12 per cent over the same period to a value of 49 million Euros.

Apartment price per square metre in January saw no significant variation for the tenth month in a row, where prices have remained above the 1 000 Euro per square metre mark; in this case it stood at 1 036 Euros. The most expensive apartment to be sold in Tallinn cost 350 000 Euros, whilst the cheapest in the city went for 1 500 Euros [editor’s note – such seemingly fantastic bargains are only likely to be found in the outer, Soviet-era dormitory districts, and are most probably affected by other issues].

Twenty one entire residential buildings were built in January 2012, seven less than the previous month. The most expensive deal came to 1.45 million Euros and the cheapest cost 100 000 Euros.

Four unimproved houses were sold in the same month, eight less than in December 2011.

The original article (in Estonian) can be viewed here.

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Colliers International: Demand For Commercial Space To Increase

Here at Tallinn Property we like to focus on residential real estate, but it’s worth taking time out on occasion to examine how other areas of the real estate market are faring.

Real estate analysts Colliers international’s monthly survey, when taking 2011 as a whole, has shown that whilst at the beginning of 2011, no significant changes were expected to take place in the market, there was a surprise in store in the office space sector, where at the end of the year there were few vacancies and a rise in the rental price for new office space.

“There is a distinct lack of first-rate office space, and thus we forecast that by 2013 there will be an increase in this area  in the central business district [of Tallinn] of at least 10 000 square meters” says Colliers Investment and Evaluations manager Margus Tinno.

“The retail sector, which saw a high degree of competition between supermarket chains in 2011, will see this trend continuing into 2012. Rental rates for long term tenants should remain stable; however some smaller landlords may increase rents” Mr Tinno went on.

Activity in the real estate market saw some unexpected developments in 2011, which was mainly driven by the public sector. In 2012 the Technomedicum (incorporating the biomedical engineering, clinical medicine departments together with the cardiology centre) and Mechatronics Centre at the Tallinn Science Park is due to be finished, and about half of the space is so far subject to rental lease agreements with the state. Additionally, the Ülemiste Technopolis has started to construct some new office space, of which 11 600 square metres is to be taken up by the Estonian Tax and Customs authority. Furthermore a new headquarters for the Estonian Statistics office, of around 4 4000 square metres, has been planned for the end of 2013, all of which makes the public sector the most important driving force in the marketplace for office space.

2011 saw a growth in exports which in turn led to increased demand for industrial and warehouse space. A significant number of industrial enterprises and foreign capital-based companies, which work primarily in the electronics and distribution fields, have begun to consider expanding and thus need to find additional or entirely new space. However, due to rising construction costs, commercial rental prices have increased significantly (by 50 per cent or more when compared with 2009). Colliers predicts that the industrial warehouse market will be seeing a distinct lack of larger, high quality space, and so there is a current gap in the market for speculative, good quality warehouse space with a provisional asking rental of 4-4.50 Euros per square metre per month.

Overall, the boom time of the middle 2000s saw a decline in the use of warehouse ownership. More and more warehouse users are preferring to rent warehouse space, thus keeping themselves free of the capital and real estate commitments that ownership entails. The situation is somewhat different for heavy industry, however, where more specialised production demands tend to necessitate ownership of suitable facilities.

“Whilst the debt crisis in the Eurozone has continued to adversely affect the investment market, the total volume of investment in this area in 2011 came to around 250 million Euros, which is more than three times the value for 2010” Tinno goes on.

“The largest single deal in the history of the Estonian real estate market took place in 2011 as well, when publicly-traded Finnish retail investor Citycon purchased the Kristiine shopping centre in Tallinn for 105 million Euros. We anticipate that the investment arket in 2012 will continue to be active, because most investors now have the funds available, and the market is expecting to see investment coming to sites” he concludes.

The original article (in Estonian) as published on Tõnu Toompark’s Adaur blog, can be viewed here.

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Real Estate Market Growing Slowly But Steadily In Tallinn, Tartu and Pärnu, Estonia

Today’s residential market seens to be relatively calm, with sudden changes not taking place, writes Tõnu Toompark on his adaur blog. However, developments in the city centre of Tallinn, particularly in the high end of the market are certainly a contributory factor to why Tallinn’s apartment transactions have increased by 18 per cent over the last year, he writes.

It is hoped that large price increases remain exceptional, because otherwise prices would rapidly rise to a level which would put them beyond customers’ reach, Tõnu writes.

The third quarter of 2011 saw the number of apartment transactions progress, as had already been the case in the previous quarters and indeed previous year, Tõnu points out.

Despite setbacks in the number of deals at the beginning of the year and in the summer, the third quarter saw some 3 429  apartment transactions, says Tõnu.

Thus it is possible to say that the residential apartment market is already sufficiently active, which means in turn that waiting for further increases in the number of transactions could prove to be in vain.

The number of transactions may temporarily grow for example as the result of major construction developments; however in the long term a higher level of transactions will not be sustainable, Tõnu argues.

As a comparison, the number of apartment transactions which took place in the third quarter of 2011 in Tallinn stood at 1 476, in Tartu, Estonia’s second city, the figure was 333 whilst for the third largest city, Pärnu, 139 transactions were carried out.

In total in Estonia the number of apartment transactions grew by 5 per cent over the year. However the prevailing uncertainty in the economy doesn’t give any reason for believing the number of transactions should grow. At the same time it is not so great as to cause the number of transactions to dry up altogether. Rather there has been a temporary downturn in the number of transactions, but this shouldn’t be a basis for our long term prognosis, Tõnu writes.

In the whole of Estonia the number of transactions increased most of all in Tallinn and Tartu, where the growth was four per cent and twelve per cent respectively. In Pärnu the number of transactions in the third quarter of 2011 stood at the same level as was the case a year ago.

Transaction prices are increasing slowly but steadily despite what the pessimists are saying, the average price per square metre in the third quarter of 2011 stood at 723 Euros per square metre.

Transaction prices, i.e. real estate values, are at a level which have been favourable both in terms of property asking prices, and earnings. It is clear that unemployment is high and real wages not rising, which leads to the problem of real estate purchasing using loan finance. Thus a lot of would-be real estate bargain hunters have missed their moment, Tõnu points out.

The average price per square metre for apartments in Tallinn stood at 1 070 Euros in Tallinn, 835 Euros in Tartu and 756 Euros in Pärnu, in the third quarter of 2011. Price increases in apartments seems sustainable. Apartment sale prices compared with the same quarter last year have seen positive increases for five quarters in a row, Tõnu explains.

Apartment price rises are not a primary cause for celebration during the exit from an economic crisis, but the fact that prices are so beaten down during a downturn, whereas relying on the wisdom of hindsight today, means that the only way is up anway, Tõnu says.

Fortunately price rises are not so rapid as to hinder demand. This is confirmed by the developments in the number of housing transactions. Apartment transaction prices have risen in Tallinn for six quarters in a row. Compared with the same period a year ago as we pointed out in the introduction, this rise stands at 18 per cent as of the third quarter of 2011. In Tartu the apartment transaction prices have also risen for six quarters in a row, but the increase as of the third quarter of 2011 is only three per cent. In Pärnu the transaction prices have risen three quarters in a row with a two per cent increase, says Tõnu.

Peak prices in all three cities were reached in the first and second quarters of 2007. But with more than a year of continuous price rises, the gap between that peak and current prices is getting smaller, Tõnu points out.

This runs counter to the claims of those pessimists who say that 2007 prices will never again be attained, says Tõnu. The real issue is what the real value of money today is compared with 2007 and this newly-achieved peak.

The average transaction price of apartments in Estonia today is 60 per cent of that of the former peak, and this would require a price rise of 66 per cent to reach that peak again, Tõnu writes.

Tallin’s price level stands at 65 per cent of the earlier peak, which would in turn require a price rise of 50 per cent to regain the earlier peak. For Tartu the figure is even higher at 70 per cent of the peak levels. This would need a price increase of a little more than 50 per cent to be reattained.

Summary

The big risk in today’s market is too high a price rise. Rapidly rising prices make affordability of housing difficult and thus reduce market liquidity, says Tõnu.

Market opportunities are at a relatively low level of finance (i.e. the turnover of housing loans is low) despite an increase in the volume of transactions, and therefore price rises are remaining relatively stable. Behind this lack of loan rise is in particular the demand for loans, which remains depressed at a time of economic uncertainty and stagnant real wages.

Thus we can expect that, barring anything catastrophic happening in the real estate market, the developments in the housing market will continue along the same lines, Tõnu explains. Transaction volume is likely to remain at the current level, since the potential for increase is scarce.

Apartment prices could slowly but steadily increase. It seems certain that the 18 per cent rise of the last quarter was too rapid, however.  But a growing market could help to bolster the turnover of housing loans and thus in turn improve that market.

The original article (in Estonian) is available here, together with useful diagramatic information.

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UK-style Tallinn property agency Goodson & Red doubles in size

Hope you don’t mind us bragging a bit about some thrilling developments our company is going through.

It is an exciting time for Goodson & Red Tallinn property consultants and managers as the company expands to include four highly experienced team members, doubling in size, making us ready and eager to bring a fresh approach and set new standards for our industry.

We are therefore delighted to welcome Andrew Whyte, Kati Lips, Erki Kommussaar and Tuuli Edur on board. At Goodson & Red we embrace change and are constantly challenging tradition, because we have a strong desire to improve the way our industry operates. With Andrew, Kati, Tuuli and Erki we are laying the cornerstone for building up even stronger buying, selling, and investment advisory services, as well as property brokerage services for sellers. Additionally, we believe the synergy with our existing letting and management team will prove to be priceless.

Kati, Tuuli, Erki and Andrew have over 30 years combined comprehensive experience in property buying, selling, letting and rental advisory and brokerage services. Kati Lips has been working in the real estate field since 2000. At Ober-Haus, one of the biggest real estate companies in Estonia and part of the Realia Group, she built up an impressive array of letting advisory and rental brokerage services and later became a leading selling advisor and agent. Tuuli Edur started in real estate about 13 years ago (including 9 years with Rime, another leading property agent in Estonia). During her years at Rime and Ober-Haus she was recognized by both companies as the top performing agent many times, and has found her niche as a specialist and leading selling advisor and agent for new homes, developments, land and houses. Erki Kommussaar has specialised as a selling advisor and agent, and focused on new homes, developments and distressed properties at Ober-Haus . He has been working closely with the banks to help banks’ clients to sell their properties. Andrew Whyte joined Goodson and Red in 2010 with the remit of building and fostering partnerships with UK and other overseas agencies and acting a broker for UK and other property investors. He is also responsible for updating the Tallinn Property blog and English language aspects of our website. He is a UK national with several years’ experience in property investment. Overall, our team knows everything there is to know about property in central Tallinn.

Through more than eight years of consistency in one of the most active property markets in Eastern Europe, the joint UK-Estonian venture of Goodson & Red Property Consultancy (former RED Group Apartments) has developed an enviable reputation for in-depth market knowledge, expert, and considerate personal service. Although Goodson & Red is a full service property agency, in Tallinn and throughout the whole of Estonia we are widely regarded as the market leader in our niche of the property market: serviced short-lets, mid- and long-term rentals, management services, home search, as well as buy-to-let consultancy. Currently Goodson & Red has almost 100 apartments under management.

Goodson and Red seeks to set the benchmark by which other property agents in Estonia will measure themselves, in terms of vision, quality of service, clarity and honesty.

You can meet our new property consultants Andrew Whyte, Kati Lips, Tuuli Edur and Erki Kommussaar at Goodson & Red Property Consultancy site.

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Estonian Construction Volume Still Falling

According to Estonian Statistics Office data, the index of construction volume for the fourth quarter of 2010 fell by 4.7 per cent compared with the same period a year ago, as reported on Tõnu Toompark’s Adaur blog.

Aside from the third quarter of 2010 when there was a small 1.1 per cent year on year increase, this has been the twelfth successive quarter in which the index has declined.

One small positive detail is the fact that the rate of decline has slowed somewhat, Tõnu says.

The full article (in Estonian) can be viewed here.

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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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Residential Real Estate Offers In Estonia Showing An Increase

Real estate portal KV.ee’s index of property prices in Estonia seems to be on a horizontal plane at the moment, according to Tõnu Toompark’s Adaur blog. The Index currently stands at 61.9 points, 1.7 per cent lower than this time last year.

However, in view of an inflation rate that exceeds the 5 per cent mark, the true figure for average real estate prices in Estonia is even less than this level would suggest.

The index doesn’t seem to have risen in accordance with the arrival of the Euro. Rather, the very arrival of the Euro seems to have cut the number of transactions and brought the housing market to something of a standstill, writes Tõnu.

The number of bids according to the KV.ee portal increased steadily from the beginning  of last year until the autumn. At its peak in September 2010, the portal reported 20 500 residential bids. Thereafter there was a brief decline in the number of offers until the new year, when they gradually started to pick up again. These were largely constituted by those sellers who were anticipating higher prices with the arrival of the Euro and so held off putting their properties on the market until then, but the trend was affected by a shrinking number of transactions in January and February 2011 due to the seasonally slowing market.

The current number of residential offers on KV.ee stands at 19 500, or 11 per cent more than a year ago.

To sum up, it is only a matter of time until the decline in residential prices in smaller regional areas stops. When this happens, the KV.ee index should start to rise again. Thus the fall in offer prices is sure to finish in due course, as the effect of higher transaction prices kicks in.

The KV.ee index, which commenced on 18 February, 2008 (i.e. this is the date on which the value of the index is calibrated at 100) measures the week on week change in residential real estate prices in Estonia. The data has been measured back anachronistically to 1 January, 2005, when the index stood at an “all time” low of 49.9. The “all time” high came on 7 May, 2007, when it stood at 108. Following the economic downturn of 2008 onwards, the index reached a low point (to date) of 61.4 on two occasions, on 5 September and 27 October, 2010.

Tõnu’s original article (in Estonian) is available here.

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Construction Insider: Tallinn Property Market Suffering From An Offers “Drought”

Astlanda OÜ board member Kajar Kruus has provided an interesting perspective on the current situation in the real estate market in Tallinn, the indicators and reasons behind its seeming upturn as well as shedding some light on the realities behind the downturn.

Speaking to Tõnu Toompark’s blog, Mr Kruus said that, in a sense, the crisis had been something of an illusion, since the high prices that sellers have been asking for were unrealistic, and currently there is a need for affordable housing in various market segments.

Today the situation regarding the real estate market has changed, he goes on to say.  It’s even possible to state that there was a critical shortage of apartments in the real estate market in 2010. Good deals had already been snapped up very quickly, and virtually no new housing was replacing this, due to a lack of finance for purchases, he says.

Times have changed however, and money is now flowing into the real estate market as the spring waters flow into the sea, writes Mr Kruus somewhat poetically. Money is being offered to developers and campaings have been launched, presumably by the banks, targeting potential loans customers. There is a stock of new developments which are being sold out even more quickly than developers’ expectations, Mr Kruus states. Behind these successful sales lies a supply of standard flats with the better, erstwhile planning standards, reasonable prices and other thoughtful solutions attached to them, Mr Kruus says.

Positive examples are not hard to find, he goes on. A development in the Kalamaja district of Tallinn, units of which started selling in December 2010, immediately saw sales of a quarter of available flats, according to Mr. Kruus. Similarly, a development comprising 96 apartments in the Lasnamäe district which started in January has also seen a quarter of the units sold or reserved, he says.

The sale of the Toompark development on the fringes of the Kesklinn (city centre) began four months ago. Units there carry a price tag of around 1 690 Euros per square metre, and about half of them (37 in total) have been sold, Mr. Kruus states.

Reasonable prices for new apartments seem to have remained stable. However, the price of construction has increased by some 20-30% and seems likely to continue to do so, which could lead to inflated prices in the future, writes Mr. Kruus.

Today’s entry into the market of new residential projects and their rapid sales take-up have exacerbated the housing shortage, Mr Kruus believes. The property market in Tallinn and its environs is now ready to take on some 1000-1500 new apartments, he goes on. Furthermore, if the progress continues at today’s pace, next year could see a volume of new apartments which is as much as 15-20 per cent higher than today, he states.

Mr Kruus sums up by saying that the real estate market has picked up due to a demand for new projects. Furthermore he feels that the contemporary buyer wants a high quality apartment in a good location – something which the market overlooked during the boom years.

For the full report (in Estonian) see Tõnu Toompark’s blog here.

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Tallinn Property Price Rise – Temporary But Advantageous?

According to real estate portal kv.ee, residential offer prices in Estonia, following a plateau where prices remained static, have seen a sudden increase, as reported on Tõnu Toompark’s blog. Kv.ee‘s own index of real estate prices shows a level of 62.8, as against a low of less than 61.5 in the autumn. However, this is still 1.7% lower than the same period a year ago.

This would appear on the surface to be good news since, as reported in this blog last November, notwithstanding many real estate agents’ desire to see a rise in prices, the KV index of real estate prices had continued to fall through the course of 2010, and as we also reported, the beginning of the year, with the adoption of the Euro, didn’t see any rise in prices either.

In absolute terms this means that the average offer price as listed in the kv.ee portal stands at 825 Euros per square metre (a year ago, real estate brokers were on average asking for 839 Euros per square metre for residential property).

However, despite the recent rise in prices, Tõnu goes on to argue, caution is of the essence, as ever. Last week’s price jump probably doesn’t represent a sudden and lasting change in the real estate market. What it does however relate to is that sales have been coming from a succession of new real estate developments, and this in turn has skewed the average price figures upward somewhat.

Furthermore, a minority of real estate brokers, have awoken from their winter ‘hibernation’ with the changeover to the Euro, and rounded up unsymmetrical looking figures which had been converted from Kroons into Euros into nicer looking and rounder new Euro prices; this has added to the effect, says Tõnu.

Experience shows that conditions where the market is fairly dormant can lead to a situation where the buyer is king. This means that the practice of rounding up prices that we have seen doesn’t mean the transaction prices will necessarily be met, but rather an increase in bargaining leeway is made possible, which savvy buyers can turn to their advantage.

The kv.ee index, which commenced on 18 February, 2008 (i.e. this is the date on which the value of the index is calibrated at 100) measures the week on week change in residential real estate prices in Estonia. The data has been measured  back anachronistically to 1 January, 2005, when the index stood at an all time low of 49.9. The all time high came on 7 May, 2007, when it stood at 108. Following the economic downturn of 2008 onwards, the index reached a low point (to date) of 61.4 on two occasions, on 5 September and 27 October, 2010.

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