Statistics: There are 159,411 residential mortgage loans in Estonia

The average residential mortgage loan in Estonia fell to €36,802 in Q3 2013. However, the changes are not significant – the loan balance a year ago was just 1% bigger than today.

The average loan amount is decreasing mainly as a result of new residential mortgage loans. The total number of residential mortgage loans just a year ago was 157,600, but the relevant indicator at the end of Q3 2013 was 159,400. This shows an increase of 1.2%.

The main factor behind the increase in the number of residential mortgage loans is the interest rate, which has remained very low for a year now. The increase in average wages has supported the good impact of the low interest rate.

The fear of missing out on the price increase shared by home owners is also something that must be mentioned. The hope that the fast increase in apartment prices seen last year will also continue in the coming years is an increasingly more frequent reason for buying a home.

Balance and number of residential mortgage loans in Estonia under repayment

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Statistics: Residential development loan balance down by 17% in a year

According to the Bank of Estonia, the balance of loans granted for investment properties and development in Q3 2013 was €1.7 billion. This is 4.6% less than in the previous year.

The loan balance of retail property financing has decreased by 21% and the loan balance of residential development by 17%.

The decrease in the residential development loan balance is the result of the low new loan turnover. In Q3 2013 banks issued loans in the amount of €7.5 million for residential development, which is one of the lowest figures in recent years.

Balance of loans granted to non-financial companies by purpose graph

Turnover of loans granted to non-financial companies by purpose graph

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Ten Top Tips When Buying Residential Property In Tallinn And Estonia

In amongst all the up-to-date news and developments about the real estate market, and everything else in Tallinn and Estonia, we like to provide concrete advice to those who are thinking of buying in Tallinn. After all, property is our passion so we ought to give vent to that now and again!

To that end, here’s some advice on buying here, which we’ll provide free, ‘cos we’re like that. We might even cover the dos and don’ts of letting out property here soon as well so watch this space. Even if you have already invested here, you will find some useful tips to help you navigate the small but thriving real estate market here.

We have taken the perspective of a potential overseas investment buyer in Estonia (i.e. buy-to-let) but the following is largely also applicable to those who are thinking of buying a part-time (such as holiday home or pied à terre in Tallinn) or indeed full-time dwelling in Estonia.

Please note that this post is for information only and should not be taken as legal or financial advice. Please contact a legal or financial professional for that! (We can help get you in touch). This information is provided free of charge and, whilst we strive for accuracy in all things, Tallinn Property and Goodson & Red accepts no responsibility for any loss or other misfortune arising after acting upon this advice.

That said, we are confident that the information provides an accurate consumer-eye picture of the residential real estate climate in Tallinn and strongly advise you to bear it in mind, especially since there is unlikely to be any similar information avaiable in English, so read on..

1) Find a reliable partner who will protect the buyer’s (i.e. your!) interests. The best indicator is a good friend, acquaintance, a positive experience or a recommendation from someone in the know here. If you are not sure then visit at least a couple of estate agents/brokers to get a better idea of different work cultures and strengths.

Some of the agents here in Tallinn are large and well established, including Uusmaa and 1Partner, which have a large volume of items, a big staff, offer a range of services and have plenty of knowhow (Uusmaa was founded in 1993 not long after Estonia became independent, and is nationwide). 

Some other bigger agencies in Estonia to think about include Pindi-Eri, Arco Vara, DTZ (which is not so strong in Tallinn) and Domus.

Bigger is not necessarily better of course, and there are a plethora of smaller and middle-sized agents in Tallinn and Estonia in general (at least 300 across the country). The range and quality of services will vary, however, and it is important to understand that the estate agent sector is not so heavily regulated as it is in, say, the UK. Some agents, particularly the bigger ones, are heavily sales-driven; the very small outfits may simply be an individual registered as a company to market a couple of properties belonging to themselves or friends and relatives. In general not all agents are experts in dealing with overseas investors and focus more on the domestic market so it is important to establish their credentials here too.

2) Unless you speak Estonian it is naturally important to find an agency conversant in a language which you understand. Most of the bigger agents, indeed most professional-aged people, will speak English, and most agents will speak Russian too. It’s not hard to find Finnish speakers here either, and not unheard of for agencies who have staff conversant in German, Swedish, Spanish or Italian either.

Most of the bigger agencies will have websites in two to three of these languages (usually English is one of them, although not all of the material in Estonian is necessarily translated) and often each individual agent will list the languages he/she can speak.

3) Be sure of the current market situation. The market is relatively transparent compared with some other areas of the CEE zone; one useful source is the two big real estate portals here, www.kv.ee and www.city24.com. These hold most of the properties that are on the market in Estonia (city24 also covers Poland, Sweden, Finland, Lithuania and Latvia) are searchable (in English) by region of Estonia, district (in the case of Tallinn) number of rooms, size, price and many other variables. Listings usually come with multiple, good quality photos although you should of course visit a property in person before buying; the agent who is acting for the property will be listed. Of course some properties will be listed with multiple agents.

Please note that just because a property is listed on kv.ee or city24.ee it doesn’t mean that the asking price is necessarily going to be reasonable, and be sure to look at the date the advert commenced. If a property has been up for more than a few months it is likely there are some issues either with price or something else. At the time of writing the average price per square metre for property in Tallin was a little over 1 000 Euros/square metre, rising to around 1 800 Euros/Square metre in central Tallinn (usually somewhat more than that in the Old Town itself, with Toompea being generally the most prestigious part of the already-prestigious Old Town) and the sought-after residential district of Pirita.

The figure for the whole of Estonia was 700 Euros/Square metre at the time of writing although there are naturally regional variations, with Tartu and the resort town of Pärnu, for example, being more expensive than the towns in the eastern-most parts of the country.

A bewildering array of statistics is published every month by one of the big hitters, Pindi-Eri, although the catch is it’s all in Estonian. This includes figures for average prices, sizes, number of owners etc. for all areas of Estonia going back many years (transparency, remember!). Some more comprehensive information is available on real estate expert Tõnu Toompark’s adaur blog (again usually in Estonian) together with Goodson & Red’s quarterly Market Review (and this IS available in English!) plus of course this blog.

4) When you have found an agent, obtain from this real estate partner an accurate picture of the service they provide and the fees they charge buyers for their services. It is normal for buyer’s agents to charge something. This shouldn’t be much more than a two to three per cent commission, or a fixed fee plus commission, or purely a fixed fee, but it varies by agent and also type of property.

It would often work in the buyer’s advantage to go for a fixed fee, since with a commission, it is not in the agent’s interest to get a lower price since they would be losing out on commission in so doing. At the same time this fixed fee might be split between an initial sum and a ‘bonus’ sum payable on completion of sale. A ballpark figure fixed fee would be a around 1 000 to 2 000 Euros for the initial fee. The bonus will often be pegged to the value of the property and could be anything from around 500 Euros for a small property to 3 000 or so for a high end property. In any case the fixed fee should equate to a commission of around two to three per cent, without the disincentive noted above.

Beware of agents who promote a ‘discount’ on their fixed fee or commission if the selling price is reduced by a certain amount from the asking; this could encourage the buying agent to collude with the seller to set the initial asking price higher than it is worth to give the impression of obtaining a good price. Thankfully such practices in Tallinn are now the exception rather than the norm and not something which larger, reputable agents would be likely to fall into, but as an overseas national it is important to exercise due care and obtain the advice and assistance of a local acquaintance where possible, even simply for language issues. On the plus side, Estonians are quite flexible, if you see a property you like but the buyer’s fee structure doesn’t quite work for you, always speak up and ask how this can be negotiated.

5) Become acquainted with all factors relating to the buying process. These include notarized contract forms, state orders of magnitude, notary fees etc. In general this is quite a straightforward affair in comparison with the UK for example, and it is not necessary to hire a lawyer or obtain a full survey unless you wish to.          

Ask the partner to identify local laws related to real estate acquisition / possession / management. Depending on where you are from, there may be restrictions to buying property (if you are an EU citizen for example, there are not). Also be sure to check whether your country of origin has a double taxation agreement with Estonia; if it does not, you are not liable for taxation on rental income in your own country.

In general if you on the ground in Tallinn or Estonia it is possible to view a property in person in exactly the same way you would do in the UK or US, though you can usually (not always) expect a refreshing lack of hard-sell or ‘estate agent-ese’ in comparison. Making an offer can be done verbally although this does not make it legally binding; the seller might come back with a counter offer, although note that some sellers have little leeway in the negotiation process (due to many people borrowing during the boom time at a large loan to value rate at higher price levels than today). Naturally you should have an idea based on point 3) above plus your own reasearch as to whether you are getting a good deal even at the asking price, and there are some bargains around.*

6) Explore all options for finance. If you are able to borrow from Estonian banks (for instance an EU citizen should be able to) it is worth investigating because they are offering low rates even by present-day standards (as low as three per cent). The real estate portals kv.ee and city24.ee noted in point 3) above carry mortgage calculators which can give the monthly payments due on a property. Banks are much more stringent in their terms than the boom period of course, and 100 per cent loan to value mortgages are a thing of the past, though that is likely to be the case everywhere. In any case the mortgage application process in Estonia is quite straighforward and decisions are usually made quite quickly. If you are based in another country it may be possible to use your income there to determine how much you can borrow; with Estonian real wages still comparatively low by EU standards you may find you can borrow much more than a local Estonian could, however it is a good idea to exercise restraint and not overstretch yourself.    

7) When considering buying an investment property, 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 located near to public transport links, retail outlets and other facilities? Again, your agent will be able to advise you on this.

8) Location, location, location. Something of a cliché 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, so you should really confine your search to these areas of Tallinn. Also worth considering are areas which are “up and coming”, most notably the waterfront from the harbour westward to the Kalamaja district, fast becoming the bohemian quarter of Tallinn with restaurants, cafes as well as residential developments sprining up, and still within walking distance of the centre; your broker will be able to advise you on the current landscape.

We are not saying that properties outside this zone are necessarily going to be untenable, but the distant location together with type of property (which tends to veer between either Soviet era apartment blocks or older wooden houses which would tend to suit local families, to larger, detached houses with large gardens which would be difficult to let out and manage) make it unlikely. Outside of Tallinn the scope is somewhat more limited for investment property, but your agent will be able to advise you nevertheless.

9) When buying a newly-refurbished apartment, do not assume that the kitchen, and even the bathroom, will be fully installed. Often you will have to by the fittings separately and get them installed, so be clear as to what is and is not included in the price and the time-frame within which the property will be ready for habitation.

10) When employing the services of workmen be sure to get recommendations from your agent or other contacts that you may have in the country. Self-explanatory really, but please note that due to economic factors many of the country’s best construction workers, craftsmen, carpenters, plumbers etc. are out of the country at any given time, sometimes only on a temporary basis but often (particularly in Finland) semi-permanently at least. For this reason it is crucial you get recommendations. On the other hand don’t let this put you off any property which you see as having potential but which needs work; part of Estonia’s economic recovery at the time of writing lies in a mini-construction boom, with rising prices in construction materials ensuring that there are people willing and able to work in this field.

 

*Please note that the above info does not include the case of foreclosed properties, which are generally in the possession of the banks and are often being auctioned off. Having said that much of the excess here has already been taken up and it is difficult to find bargains today, not to mention the fact that there might be issues regarding existing tenants or former owners still inhabiting the dwelling. For this reason we do not recommend inexperienced investors in this region intentionally pursuing this route.

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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“Why You Should Be Investing In Tallinn Real Estate – Your Essential Guide to the Tallinn Property Market”: Available Soon!

We haven’t forgotten about our promise to launch the new Guide “”Why You Should Be Investing In Tallinn Real Estate – Your Essential Guide to the Tallinn Property Market”: Available Soon!”.

Our team are putting the finishing touches to the publication and it will be out very soon so watch this space!.

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

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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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Statistics: Mortgage Interest Rate in Estonia at a Record Low

According to Tõnu Toompark’s Estonian property Adaur blog, morgage rates in Estonia have fallen to a level of 3.15 per cent at the end of the first quarter of 2012. The only other time when such a low level of domestic rates was reached was back in 2005, writes Tõnu

And whilst interest rate margins have steadily grown over the last year, the falling Euribor rate of European banks’ lending rates has contributed to the overall decline in Estonian banks’ interest rates.

The current prognosis would have it that a low Euribor looks in the offing, and as a result, continuing low interest rates, writes Tõnu.

Meanwhile loans to businesses stood at a rate of 4.17 per cent at the end of the first quarter of 2012, Tõnu goes on.

This is a translation for Tallinn Property and Goodson & Red Estonian property consultancy, and the original article (in Estonian) is available on Tõnu Toompark’s Estonian property Adaur blog here, complete with detailed graphs going back to 1998 and showing changes in Euribor rates, as well as interest rates within Estonia in Kroons and Euros (and also Deutschmarks since the Estonian Kroon was initially pegged to the German Mark after its inception in 1992) as well as the margin, i.e. the difference between the Euribor rate and the Estonian banks’ own interest rate.

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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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Statistics: No Change In Loans Interest Rates

Euro-based home loans rates have remained unchanged in the range of 3.2 to 3.4 per cent, despite small rises in the Euribor index of European lending rates since 2009, according to Tõnu Toompark on his adaur.ee blog. The monthly rate stood at 3.4 per cent for March, whilst the Euribor index over the same period was 1.5 per cent, writes Tõnu.

These small but persistent rises in the Euribor rate, when combined with falling lending rates by the banks themselves, mean that banks’ margins have been eroded somewhat.

Meanwhile the average interest rate for business loans stood at 4.47 per cent in March, Tõnu explains.

The original article (in Estonian) along with diagrams illustrating the chages in Home loan rates in both Estonian Kroons and Euros, and margins, is 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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ECB Rate Increase To 1.25%: Effects On Estonian Property Market

The European Central Bank (ECB)’s decision to raise the base lending rate to 1.25% on Thursday last (7th April) perhaps comes as no surprise, and it seems likely that further rises are due for the course of 2011.

Since many Estonians hold their mortgages in variable rate packages which follow the base rate, this means an increase in repayments (approximately 160 Euros per year, according to Baltic Business News, quoting business publication Äripäev).

However it needn’t mean that fixed lending rates in Estonian high street banks will go up just yet, since banks are prepared to absorb the increase in their margins. The current margin average is some two per cent (i.e. on top of the base rate) down from 2.4-2.6 per cent in 2009, but the all time typical margin stands at only 0.5 per cent. Therefore there is still plenty of room for a reduction of margins, rather than an increase in bank rates. This is significant in the rejuvenation of the Estonian property market after the recession of 2008-2010, since it means bank rates should remain at an affordable level for the meantime, and not act as a barrier to potential homeloan customers.

The increase in base rate is likely nevertheless to impact upwards on the Euribor index of average European banking interest rates.

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