5 Observations – 2019 Rental Market

Estonia's rental market never tires of surprising and is as volatile as an Estonian summer. Just when it seems the market is about to reach the next level of maturity, rental prices are growing and regulations are working, offering general satisfaction to all parties from the Tax Board to the hipster wanting to rent a one-bedroom apartment with one dog and two cats, the next moment satisfaction indices are in the mud, demand is as high as it is for Latvian beer, and the lucky ones are those rental seekers who can make quick decisions with money in their wallet.

What gave color to this year's rental market?

Demand remains high

Over the past five or more years, investments in rental real estate have become like a national sport and should provide relief to the hungry rental market, yet it has still not been sufficient. Most vividly, this year's summer again showed that in major centers, after university entrance exams, demand is red-hot and students renting apartments have essentially no time to think and no freedom of choice. If anything seems even remotely suitable, a rental contract must be concluded immediately.

Foreigners are driving up demand

If a decade ago, the share of foreigners in Estonia's rental market was rather marginal, limited to a few entrepreneurs, academics, welders and other workers, today the number of foreign programmers, construction workers, cleaners and others is massive and a serious problem. Demand is high, but supply is lacking, because landlords' distrust of foreign-speaking tenants smothers the desire to earn money. At the same time, this is the place for the next micro-boom, where to meet demand, enterprising people can bring too much specific rental property to the market, aimed specifically at the foreign target group. Renting space to foreigners is currently a great opportunity and a smart business idea, but it depends very much on the state of the economy, political decisions, or factors where the landlord has no choice but to watch events unfold from the sidelines.

Rental apartment buildings are here to stay

The first rental apartment buildings with dozens of units have been completed and filled with tenants, and many more projects await their turn in drawers. The market for larger rental buildings has started slowly; investors and entrepreneurs are clearly cautious and watching carefully how the first projects are doing. At least in Tallinn, projects with hundreds of rental apartments are in preparation and should further ease the shortage of rental apartments on the market. But as can be seen from many other segments, many dream of the rental business, excel spreadsheets glow with profitability calculations, yet we can assume that not all 100% of planned projects will reach the market. Not all projects can secure funding, some projects find a more profitable business plan, some projects wait for an even more certain moment to enter the market.

Landlords' power remains strong

Since demand is sufficiently high, landlords have enough choice and can make agreements with tenants who are not very demanding or pretentious. If a tenant dares to mention during the signing of a rental contract that the security deposit should be held separately and interest should be paid to them on it, the tenant must unfortunately be prepared for the possibility that a rental contract may not be concluded with them at all. The law contains many points that can be said to be tilted toward the tenant, but in many cases these have not become the norm in practice due to both poor knowledge of the laws and the resulting supply-demand situation. If a tenant turns out to be too "smart," the landlord simply takes the path of least resistance and chooses the next person from the queue. If in the commercial real estate market there is a very strong "fight" for good tenants, in the residential real estate market it practically does not exist, because Estonians are predominantly exemplary payers of housing costs.

State rental buildings do not affect the market

The former social democratic government coalition planned to distribute 60 million euros from a helicopter to create state-owned rental buildings. The government has changed and the new coalition, in chronic financial trouble, plans to spend 3.6 million euros in the next year's state budget draft for the rental fund, which is not a significant amount for the entire country to create artificial market distortions. The private sector can breathe more easily and can itself collect and put to work the opportunities available in the market.

Article source: Domus Kinnisvara