Expert: Middle Class Hit Hardest by Real Estate Decline

According to Igor Habal, a member of the board of Estonia's largest real estate office Uus Maa, the sale of the most expensive and cheapest apartments is proceeding almost normally, but real estate built for the middle class is suffering the most from the shortage of transactions.

„Somewhat surprisingly, the sale of very expensive homes is going relatively well. Currently, five projects are being successfully offered in Tallinn, where the price per square meter ranges between 6,000 and 10,000 euros and where penthouse apartments cost as much as a million. These are individual developments in very good locations that wealthy people have been waiting for a long time. There are few such buyers and developments compared to other volumes, but it seems that the market situation does not significantly affect them," said Habal.

„There is also demand for so-called economy developments, new homes in the 3,000-4,000 euro per square meter price range. The trend for cheaper homes has been for the last 15 years that they are becoming increasingly smaller. Floor plans are better designed, corridors have disappeared and, for example, a 55-square-meter three-room apartment already seems quite normal. People would prefer a new home, but in the case of cheaper new developments, compromises have been made, for example, in the quality of finishing materials, and this must be taken into account," said Habal.

„Based on the real estate sector, it appears that the middle class is facing the biggest blow – those who may earn 3,000-4,000 euros in salary, but there is little left over or no savings have accumulated. In recent years, most development has been aimed at this target group and built in every sense as average real estate, which in terms of price is already at the higher end – 4,000-5,000 euros per square meter. There are many such developments and if they do not stand out in any way, then sales are time-consuming," said Habal. „If developers previously estimated that an average project in Tallinn would be sold out within a year, then now sales take twice as long," said the board member of Uus Maa.

„Often, the main factor affecting apartment sales is considered to be expensive loans, specifically high Euribor rates. However, an increasingly important factor has become the high interest rates offered by banks for term deposits. The amount of household deposits for six-month and longer-term deposits grew from approximately 2.5 billion euros at the end of February last year to almost five billion euros as of February this year. Therefore, these deposits constitute approximately 42% of all deposits, which means that a large portion of this money is currently not moving to the real estate market," noted Habal.