Domus Real Estate Seminar "Internal Information Minutes": Inflation Figures Show Significant Decline in Spring-Summer 2023
On January 19th, the second "Internal Info Minutes" seminar in the series took place at Domus Kinnisvara's Tallinn office, aimed primarily at real estate developers and investors, but also at all those with a broader interest in real estate. This time we invited guest speakers Rasmus Kattai from Eesti Pank, Janno Meriloo from Rand & Tuulberg, and Madle Lippus from Tallinna Linnavalitsus. From Domus Kinnisvara's side, Jaan Liitmäe provided internal information.
From the perspective of Eesti Pank, it became clear that thanks to the sharply rising base effect, inflation figures will decline significantly in spring-summer 2023. Up to this point, the rise in cost of living has been largely covered by savings accumulated in recent years, but this is not sustainable. At the same time, wage growth, starting from the public sector, is also growing rapidly in 2023, which by 2024 will result in a situation where wage growth could at least match the rise in cost of living. As a second major aspect affecting the real estate market, the effects of rising Euribor were discussed. This increases costs for all borrowers – both for individuals and businesses – and will likely reduce loan demand compared to the very strong growth years of the past couple of years. For the 6-month Euribor, which is primarily used in our market, one should expect base interest rates of up to 4% in more severe scenarios. In summary, the message was that the price of money, which has returned, is here to stay, and this reality must be taken into account going forward.
Rasmus Kattai – Eesti Pank
Rand and Tuulberg see a 20% decline in construction volumes in 2023. However, this means that in monetary terms, the construction market volume is even in slight growth, but for the same euro, one can build 20-50% fewer square meters in 2023 compared to, for example, 2020 with equivalent objects with comparable budgets. This primarily means that clients need to find additional funds for the same building construction, or in the case of large clients, make decisions about which projects to build and which to postpone. Further opening up the current situation, it was noted that construction costs have remained at the same level since autumn 2022, and for 2023 one can see price stability or at most a price decrease of up to 5%. In summary, 2023 could turn out to be a very good year to order construction services. The reason is that many planned projects are being postponed unexpectedly due to large price increases. Additionally, many significantly increased construction input prices have stabilized, fortunately at much lower price levels than the peaks. When adding to this some relief from the slight decrease in market volume on the labor market pressure of recent years, the construction company representative encouraged clients to stay informed about market conditions so as not to miss this good crisis opportunity.
Janno Meriloo – Rand & Tuulberg
Tallinna Linnavalitsus presented various tools that will be used to shape the city's development going forward, benefiting both city residents and providing more precise input to entrepreneurs seeking to apply for planning documents and various permits from Tallinna Linn. For this purpose, the city has undertaken several initiatives to create more communication channels with developers and builders than before. It is important for the city that buildings planned today and built in the future be architecturally acceptable, with volumes and solutions taking existing standards into account, and that other infrastructure, from public transport to the availability of childcare spots, supports the planning of new projects. During the discussion, practitioners suggested the idea of a comparison whereby the processing of various planning documents and permits could ideally be similar in Tallinn to the application of internal risk criteria that the Tax Board implemented years ago. In other words, parties that behave transparently and correctly can benefit from faster and less labor-intensive procedures. In conclusion, the deputy mayor noted that communication is the foundation and confirmed Tallinna Linn's desire to both improve management and use this to accelerate current processing timelines.
Madle Lippus - Tallinna Linnavalitsus
Article author: Jaan Liitmäe, Member of the Board of Domus Kinnisvara
