Andree Raid: Instead of Enjoying Cheap Rent, It's Worth Hurrying with Home Purchase
A wide selection of rental apartments and rental prices that remain lower than a year ago have made rental apartments unprecedentedly attractive. Favorable rental prices are tempting renters to postpone their plans to purchase property further into the future. If buying a home is a firm plan, it shouldn't be delayed despite low rental prices, recommends Andree Raid, director of Raid & Ko real estate brokerage.
"The winter supply of rental apartments in Tallinn is wide. There are apartments in every district, in every size, in every quality. Rental prices remain pleasantly about ten percent below last year's level. Due to the additional supply, landlords cannot push prices upward," described Andree Raid the everyday reality of the rental market.
Apartment rental prices are down, but apartment purchase and sale transaction prices are rising. Based on today's data, this sends a clear message that renting is significantly more affordable than buying your own home. So why not take advantage of the situation and postpone buying your own home to the more distant future, when renting is no longer as wallet-friendly?
"The apartment purchase and sale market is hot. Transactions are being made at record levels. This inevitably means that the previous slow growth in apartment prices will accelerate. Those who postpone their purchase decision today will miss the price growth train," Andree Raid believed.
Historically, rental yield, or the ratio of annual rental price to apartment market value, has been on average approximately 5.5%. Due to falling rental prices, the winter 2021 rental yield rate has decreased below 5 percent. Widespread rental supply will keep rental prices in check in the near future. The rental supply is increasing and therefore there is no need to fear rising rental prices soon. In a longer perspective, it can be assumed that the yield rate will return to its previous level, meaning rental prices will rise.
"Looking a bit further ahead, perhaps a year and a half into the future, it can be assumed that the rental market, suffering from oversupply, will find its balance. This means that today's relatively low rental price will move proportionally to the level it has been at in previous years. From today's level, this means a 10-15% increase in rental prices. Considering the growing value of apartments, however, it can be expected that a year and a half from now, rental prices will comfortably be 15-20% higher than today," calculated Andree Raid.
When rental prices rise, this will prompt people a year and a half from now to consider buying an apartment instead of renting. Then one would have to accept significantly higher apartment prices.
"The moral is that if buying a home is in a person's plans, there is certainly no point in postponing it. Active demand and slow addition of new supply will inevitably lead prices upward. It's better to be part of this ride than to pay a higher price later," warmly advised Andree Raid.
Andree Raid
Raid & Ko OÜ Management Board Member
+372 502 3300
