Where To Buy In Tallinn, Estonia?

First published on this blog on July 21, 2012.

People often ask us what the up and coming areas in Tallinn are. What’s going to be the next hot spot to buy an investment property with a potential for strong growth and consistent cashflow from rentals?

We don’t have a crystal ball of course – and nobody does, not one that is effective anyway – but based on the empirical evidence of what has been happening in the couple of years of recovery since the slump we can make a sensible forecast.

City Centre and Old Town

First, the Old Town (see map 2 below) will continue to hold its value. It is a UNESCO world heritage site, hugely popular with tourists, well supplied with a variety of good quality restaurants, cafes, bars, craft shops, high end clothes shops and other amenities, and is close to the harbour not to mention the seat of Governmental power. What’s more people actually live and work there.

The ‘Kesklinn’ (City Centre, also called the ‘Südalinn’) similarly will retain its prominence and, whilst prices took a greater bashing here during the 2008-2010 slump than in the Old Town, is of key significance, containing as it does not only Tallinn’s Central Business District, but more entertainment outlets, foreign embassies and a large number of residents.

Add to that the district of Kadriorg, to the east of the Kesklinn, with its leafy, evocative streets, fine old housing, and the Palace built for Catherine the Great, not to mention the President’s residence, and you already have a large, contiguous area of desirable housing with strong rental potential. In fact, the three areas noted above come under the one administrative area as far south as the Ülemiste Järv (see map 2) which is the Tallinn city lake, and cover 28 square kilometres in total.

But these areas have already arrived, so to speak. Whilst developments in the Kesklinn in particular look set to continue, such as the new Finance Ministry as reported in a previous post, and there is plenty of scope for refurbishment work in all areas, it seems unlikely that there is to be any radical transformation here. That process has already happened, stretching back the 20 years since Estonia’s independence.

Emerging Districts

Now to the districts of Tallinn showing promising signs for investors. Again, these are largely adjacent to one another and can thus be treated as a single entity for our purposes. Essentially they comprise the ‘Sadam’ harbour area (see map 1 below) stretching westward along the waterfront along the ‘Culture Kilometre’ (a popular cycling and jogging route) to Kalamaja. This stretch is set for a lot of exciting development in the coming years, both residential (that process has already started with the quality new housing in the Jahu and Suur-/Väike-Paterei streets) and commercial. One recent development which has already happened is the newly refurbished Seaplane Harbour, which includes dry docks, Seaplane Hangars dating back to the late Tsarist time which hold a museum, and vessels of historical interest.

Kalamaja itself is similarly already experiencing a renaissance. It largely comprises character wooden houses, mostly around a century old but here have been some tasteful new builds constructed along the same lines, as well as new, more modern builds. The Kalamaja effect is spreading southwards to neighbouring Pelgulinn, which has similar housing stock and is quiet and family friendly, yet still a stone’s throw from the Old Town, eventually dovetailing into the borders of the more-established Kristiine suburb. The Kassisaba district (close to the British embassy) has seen construction and refurbishment activity aplenty recently as well (e.g. at Adamsoni 33).

Returning to Kalamaja, the border that separates it from Pelgulinn, demarcated by the goods rail line to Kopli, host what is really the hub of this new revival – the so called bohemian quarter. This comprises three of the hippest restaurants in town, Kukeke, run by the same people who are behind the successful Komeet restaurant in the Solaris centre, F-Hoone (literally ‘building F’) which are both in former light industrial buildings, and the more established Boheem cafe close to the station.

Other good quality refreshment outlets abound, and we have to mention the nearby Asian Cafe  on Kopli 4c close to the central train station, which offers tasty Indian, Chinese and Thai-style food for those in a hurry and at good prices.

Moreover this area is set to be the new alternative theatreland, with a theatre accomodating a good couple of hundred seats slated for construction next year.

Lastly, this effect may well spread Northwards throughout the Kopli peninsular (see map 1) over the longer term. The Kopli peninsular, once the site of aristocratic hunting forests, today displays very mixed use, with various commercial docks including the Bekker port, the HQ of BLRT, a shipbuilding company, plenty of old wooden workers cottages, office space, parkland and the magnificent Estonian Maritime Academy building. Beyond this at the tip of the peninsular lies the Paljassaare nature reserve, which is excellent for birdwatching and its natural environment in general, all year round.

Rough per square metre price of districts

As regards prices, a rough breakdown for average buying prices of the districts mentioned is as follows:

Old Town: 2 000 – 3 000 Euros/Square metre.

Kesklinn (excluding Old Town), Kadriorg: 1 800 Euros/Square metre.

Kristiine: 1 300 Euros/Square metre.

Kalamaja, Pelgulinn: 1 100 Euros/Square metre.

Kopli: 800 Euros/Square metre.

Naturally these are just ballpark figures at the time of writing and prices will vary with street, type of building, state of refurbishment etc.

As a rule of thumb, rentals will be at least 10 Euros/Square metre in the Old Town (and somewhat more than that for well-appointed properties) falling to around 6 or 7 Euros/Square metre further from the centre.

We hope that this gives a good overview of the state of play with the districts in central Tallinn to watch out for; naturally we welcome your questions, comments and feedback!

 

Maps (click to enlarge).

 

Map 1: Area to Northwest of Central  Tallinn,

including Kalamaja and Kopli peninsular.

 

 

Map 2: Old Town (Vanalinn), City Centre,

Pelgulinn and Kristiine (Lillekülla).

 

 

 

 

 

 

 

 

Map 3: Tallinn City.

 

 

 

 

 

 

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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Apartments For Rent In Tallinn Increase Y-o-Y Slightly In Number, Greater By Rent Price

There has been a y-o-y increase in rental prices in Tallinn of 18 per cent, to July 2012, according to Tõnu Toompark on his adaur blog.

This undoubtedly is connected with the short supply of rental properties in Tallinn at the moment.

According to Tõnu and citing data from real estate portal kv.ee, the volume of rental apartments on the market has increased y-o-y, but not by much, which may put a downward pressure on residential rental prices through the summer and autumn – as noted there has been a rise up to now.

Tõnu cites more data from kv.ee which states that there were 1 996 apartments up for rent on the portal in June, which is only a two per cent increase y-o-y.

However, the shortage in availablility of rental items is not as perceptible today as was the case a year ago, Tõnu continues.

This will be predominant in those areas of Tallinn where more apartments have come on to the rental market, which has happened in all districts. writes Tõnu, except North Tallinn (which includes Kalamaja and Kopli) the Soviet-era residential district of Mustamäe and the leafy, sought-after outer suburb of Nõmme. These three areas have seen a fall in the volume of rental apartments available (by as much as -37 per cent in the case of Nõmme).

Fallinn demand may be the result of rising rental asking prices (as well as the latter being the result of falling supply). The average rental asking price in Tallinn was a 6.10 Euros per square metre in July 2011; a year later that figure had risen to 7.20 Euros per square metre.

In any event this makes the rental market attractive for investors; a shortage of supply and rising rental levels mean a property could be let out very quickly and at higher prices, ensuring good cashflow.

The district of Tallinn with the highest rise in number of rental apartments available y-o-y to July 2012 was the residential suburb of Kristiine, according to Tõnu’s data, at 23 per cent. The city centre (which includes the Old Town) saw a 10 per cent rise in number of available apartments over the same period, from 736 to 806 items (also by far the highest total number of items of any region, as might be expected).

Outside of Tallinn, Pärnu saw an 18 per cent rise in apartments available for rent, whereas Tartu saw the opposite trend with a -26 per cent fall over the same period.

The figure for the whole of Estonia was a -4 per cent fall.

The original article (in Estonian) and data is here.

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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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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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