This year, property buyers need to be cautious – if the sales forecasts don’t hold up anymore, it could be detrimental to several projects. This opinion is shared by the majority of real estate developers.
The Estonian real estate market has been a relatively stable haven as long as it has been functioning. True, one exception does confirm the rule, when about 14 years ago, the American financial crisis swept the world, including the Estonian market. However, after a couple of years of decline, the price increase continued with unwavering certainty and has set new records despite subsequent global crises.
An important fact is that this isn’t an elitist investment instrument, but rather a broad public marketplace in the widest sense. There are few who have no direct or slightly indirect connection to what’s happening in the real estate market.
A definite fact is that real estate is the main source of wealth for Estonian households, and investing in real estate is a nationwide sport. This also explains the broad interest in what’s happening in the market.
Despite relative stability, the real estate market isn’t stagnant, and several factors constantly influence its operation. I would like to highlight the four most significant trends of 2023 that both buyers and sellers should consider.
Apartment prices will decrease
The official pricing statistics are inevitably affected by the fact that the sales structure of residential properties is changing. In the last year, significantly fewer new apartments have been started in Tallinn than before. The same can be said for commercial properties.
Therefore, in the coming quarters, fewer expensive new apartments will be completed, which will lower the statistical average price of residential properties. The official decrease in the average price is likely to amplify on the apartment market and will force sellers to be even more flexible. Thus, this year offers very good buying opportunities in real estate.
Financing options won’t worsen, bank loan margins will decrease
The main reason for this is strong competition in the banking market. As the overall uncertainty and rapidly rising real estate prices reduce the number of borrowers, it intensifies the interbank competition for creditworthy clients.
The rapid growth of Euribor provides additional buffer for financiers to offer discounts, hence the expectation of margin decrease. Therefore, overall, the interest cost for new borrowers may not rise as fast as Euribor but rather remain moderate.
Housing selection will increase
Despite the city government’s inability to issue licenses for new housing at an acceptable pace, rapid price growth and a normalized construction market are sufficient motivation for developers to revive postponed projects. Therefore, the selection is expanding for buyers. As each new home purchase usually frees up one existing home, the supply will also increase in the market for older apartments.
The era of speculation is ending
A moderate correction in prices is likely to put pressure on less experienced real estate developers, who entered the market within the last year, i.e., at the peak of prices.
Both land and construction costs have been very high, and if the sales forecasts don’t hold up anymore, it could be detrimental to several projects. Therefore, buyers should be very attentive to whom they entrust their down payments. Not everything that glitters is gold.
Increased competition in the sales market will likely end price anomalies, where developers can ask 4000–5000 euros per square meter for an apartment in a location that doesn’t justify such price levels in any way. The era of speculation is over for now!
