Expert: Fallen Loan Costs Brought Rental Business Back to Profitability

According to Sten Renar Subatšjus, the analysis director of Estonia's largest real estate office Uus Maa, monthly loan costs have fallen sufficiently that investing in rental apartments is again profitable.

"The period when a property owner had to pay the bank more each month than they received from renting out, is coming to an end, and this affects thousands of people. The six-month Euribor rate is currently just over two percent, and banks' own loan margins have also declined, staying between 1.4-2 percent. It depends on what terms the person bought the apartment on, but altogether the loan costs remain below four percent. If we consider that the rental yield in Tallinn was 4.7% and in Tartu 5.1% in August, it means that for the owner the calculation has reached the positive side and they no longer have to pay extra each month," said Subatšjus.

"Such a yield won't attract the masses of investors we saw a couple of years ago, but a thin layer of butter is starting to appear on the bread. Experts expect at least one more Euribor cut in the coming half year – if it falls to, say, 1.8 percent, then investing in rental apartments will make much more sense," said Subatšjus.

"In fact, the monthly yield is only one part of the formula – we also need to consider the relatively stable price appreciation of real estate, which has slowed in recent years, but still has a positive effect in the longer perspective," Subatšjus explained.

"The best rental yields are on smaller, one- and two-room apartments, which also have the highest demand. People would prefer to rent a new development apartment rather than a residential area apartment, and are willing to save a bit elsewhere for this. Currently the rental price difference between new and secondary market apartments is smaller than their market value difference, and the costs of newer apartments are also lower," added Subatšjus.

"It may seem to people that rental prices have risen a lot over the past couple of years, but the statistics don't confirm this. Prices went down in the meantime and have now returned to their previous level. For example, in August the average rental price per square meter of an apartment in Tallinn was 14.6 euros, which is at the same level as two years ago," said Subatšjus.

According to Uus Maa's analysis director, the most sought-after and most expensive districts for renting are the city districts of Kesklinn and North Tallinn, where the rental share is also growing. "Due to high sales prices, it's simply difficult to buy in these areas," commented Subatšjus.

"Currently the number of active rental listings on Tallinn's rental market has grown similarly to sales transactions. This shows that people are tired of waiting and have started to make more buy-sell transactions, which in turn increases vacancy on the rental market. On a larger scale, the rental market is currently stable and in reasonable correlation with purchase transactions, and we shouldn't expect major fluctuations until the end of the year," added Subatšjus