Experts Predict: What Will 2023 Bring to the Real Estate Market?
Economic uncertainty prevailing in the market has reduced transaction activity in the real estate sector and increased the number of secondary market offerings. Will the declining purchase interest be followed by price drops, and will the new year be favorable for home buyers? What risks should be considered? Next year's real estate trends are being predicted by Uus Maa Real Estate Bureau analyst Risto Vähi, RE Real Estate partner Andi Pleskovski, Kinnisvara24 CEO Urmas Uibomäe, and Domus Real Estate board member Rando Vanaveski.
Economic cooling affects the confidence and behavior of both real estate developers and home buyers and sellers. Real estate experts predict a quiet winter ahead, with relatively low transaction activity, falling prices, and purchase transactions taking place primarily on the more affordable secondary market, but by year's end the market will make its corrections, putting a limit on price declines.
Uus Maa Real Estate Bureau analyst Risto Vähi predicts that the secondary market for apartments and houses will be more active in terms of living space in the coming year, but the supply of new apartments will be lower in 2023. "If Euribor growth continues, we can assume that the number of discounts and campaigns offered for real estate will increase in the near term to attract buyers. At the same time, real estate investors are rather waiting on the sidelines, which means that newer and more expensive properties, which were seen as their target market, are stagnant," he added.
Regarding commercial real estate rental markets, for example, many of the office buildings being completed in 2023 are already covered either fully or substantially by rental agreements, so no price decline is expected in the new year. "Developers are completing existing projects without price reductions and since the additional volume will be smaller than before, there is no pressure on rental prices expected in the coming year," explained RE Real Estate partner Andi Pleskovski.
According to Kinnisvara24 CEO Urmas Uibomäe, the supply of rental apartments has increased on the portal, which may make certain market corrections and offer tenants greater choice, but he also does not predict a drastic price decline. "Currently, the saturated rental market is increasingly tilting towards tenants. Landlords have to work harder to find tenants than before, but rental apartments remain nonetheless the first choice of housing for many people or rented housing is accepted as an economic necessity. The result is that rental demand does not disappear anywhere and the prices of good quality objects do not change much," explained Uibomäe.
According to Domus Real Estate board member Rando Vanaveski, forecasting is made more difficult by the fact that market participants' reactions to different events can be very unexpected. "For example, during the first wave of coronavirus, it was expected that the real estate and construction market would collapse with a bang. In reality, however, the opposite happened: after a brief standstill, pent-up demand was released as if from behind a dam and brought about a boom-like situation."
"If purchase interest remains weak on the market and selling prices do not cover development and construction costs, then developers will not bring new projects to the market," added Vanaveski. "If there is not sufficient selection of new real estate on the market, then secondary market sales are also delayed, which in turn limits supply and sets limits on the continued price decline that buyers are waiting for."
According to Pleskovski, 2023 will be on one hand exciting and challenging, and on the other hand difficult for several narrower sectors and probably beyond the means of some companies. Despite the difficulties and bottlenecks, Pleskovski still believes the market is in good health. "Real estate development is concentrated in the hands of professional market participants who are well capitalized and make their decisions thoughtfully – so there is currently no risk that any started project will remain empty or completely unfinished."
Since demand on the market does not completely dry up, several developers are taking advantage of the economic uncertainty prevailing on the market and the resulting low supply period and are actually turning this situation to their advantage. "The various crises of recent years have hardened entrepreneurs – many companies have solid reserves and are well prepared for a period of economic downturn," added Pleskovski.
