The end of the year brought a wave of pessimism to the real estate market – in December, the number of transactions in the apartment market decreased by almost a third or 31% compared to the last month of 2021. Mihkel Eliste, an analyst at Arco Vara Real Estate Agency, noted in his overview that a similar market situation seems to persist at the beginning of the new year as well. Kristi Tamm, a consultant at Uus Maa Commercial Real Estate, emphasized that property buyers should be cautious this year, as inaccurate sales forecasts could prove fatal for some projects.
Eliste stated that the number of views on the most popular real estate portals has been nearly ten times smaller on some days than it was just half a year ago, as if potential market participants are no longer interested in what is happening in the real estate market. Such a sharp decline in a relatively short period suggests, according to the analyst, a clear panicky consumer behavior, which historically tends not to last very long. Nevertheless, returning to the levels of 2020–2022 in the coming years is not to be expected.
“Real estate is a long-term investment, and both rental investors and homeowners should remain calm, as in the long term, especially in Tallinn, the capital growth of assets will continue unhindered, driven by either inflation alone or the purchasing power and population growth of the residents. In 2023, new and good purchasing opportunities will arise mainly from the second quarter onwards, and it seems that some potential buyers are waiting for the deepening of the price decline,” Eliste estimated.
In addition to the loan market, the labor market will become a key question in the first half of 2023, where the escalation of possible lay-offs and bankruptcy waves could lead to further deterioration of consumer confidence, reducing the number of potential buyers in the market even more and for a long time. Eliste believes that although the number of rental offers is currently above the long-term average, the influx of Ukrainian war refugees could temporarily increase again during the winter period, and even if that does not happen, the confidence of Estonians in buying real estate is significantly worse than in renting. However, according to Eliste, a new cycle of rental price growth is likely to begin earlier than in the sales market, where, according to the fourth quarter of 2022, further rental investments have clearly declined across the country.
A situation may arise where there is money, but good offers are lacking. Katrin Kuusma, a professional senior real estate broker at Domus Kinnisvara, mentioned that there is tension in the real estate market, and all interested parties are waiting to see how things will go. Clearly, the rally has ended, and there is no rush to new sales offers, but she encourages home buyers to make their choices when a sales ad that appeals to them appears on the horizon. “The reason is simple – while new developments were popping up like mushrooms after warm rain before, at the moment, many development projects have been put back on the shelf, and the selection next year will probably be poor. Developers are trying to manipulate the market by not flooding it with new apartments, so there is no expectation of a huge price drop.
In the second half of next year, a buyer may find themselves in a situation where they want to buy property, have the money for it, but there is no good offer. The time to buy a home is always right, as this decision is made in cooperation between the heart and the mind.”
Kristi Tamm, a consultant at Uus Maa Commercial Real Estate, noted in her overview that real estate is the main source of wealth for Estonian households, and investing in real estate is a nationwide national sport, which also explains the broad interest in what is happening in the market. Despite relative stability, the real estate market is not stagnant, and several factors constantly influence its operation. According to Tamm, the official price statistics are inevitably influenced by the fact that the sales structure of residential properties is changing, and in the last year, significantly fewer new apartments have been started in Tallinn than before.
“Therefore, in the coming quarters, fewer high-priced new apartments will be completed, which will lower the statistical average price of residential properties. The official decline in the average price is likely to be amplified in the apartment market as well and will force sellers to be even more flexible. Therefore, this year brings very good buying opportunities in real estate. The increasing competition in the sales market will likely also end price anomalies, where developers can ask 4000–5000 euros per square meter for an apartment in a location that does not justify such a price level in any way.”
She added that despite the Tallinn 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 restart postponed projects. Therefore, the choice is expanding for buyers. Since every new home purchase usually releases one existing one, the supply in the market for older apartments is also increasing.
Eesti Ekspress / Gerli Ramler
