Estonia Has Had Two Real Estate Booms

Estonia has experienced two real estate booms to date. The first occurred in 2005-2007 and the second in 2020-2022. The two peak periods differ from each other like night and day, and it must be acknowledged that the first boom has not yet been surpassed.

A graph reflecting Tallinn apartment transactions best describes the boom. The capital is a trendsetter in Estonia and the region with the greatest purchasing power and speculation. There is no point in comparing median prices per square meter, as the rise in living standards and inflation during the intervening years have done their work.

The peak of the first boom came in the fourth quarter of 2005, when 3,970 apartments were sold in Tallinn with a median price of 1,043 €/m². The peak of the second boom arrived in the fourth quarter of 2021, when 3,220 apartments were sold with a median price of 2,369 €/m². While the first buying rally had 5 quarters with over 3,000 transactions, the second had only 1.

Why was the first boom so much more active? There are many answers, but as the main reasons I highlight the cheapness and ease of borrowing, as well as the absence of income tax on real estate transactions by individuals. This last factor allowed everyone to buy and sell quickly without tax obligations.

The main keywords of the second boom, alongside cheap money, were also the growth of people's financial capacities, a large share of free cash in transactions, and the establishment of investing as a conscious activity. However, bank lending conditions were significantly stricter compared to the first boom.

One more important nuance – while the first boom started and ended sharply, the second arrived more gradually and preparation had already been underway since 2017. The current decline during the COVID pandemic no longer counts at this point.

In summary, I would say that 2005-2007 was a lending boom and 2020-2022 was an investment boom.

Article author: Risto Vähi, real estate analyst