Expert: The price difference between new and second-hand apartments is currently exceptionally high

According to Sten Renar Subatšjus, the analysis director of Estonia's largest real estate office Uus Maa, the price difference between new developments and second-hand apartments is currently significantly larger than usual, which is why new apartments have low availability and the majority of transactions are conducted on the secondary real estate market.

According to Sten Renar Subatšjus, the average price per square meter for a second-hand apartment on Tallinn's secondary market is currently 2,800 euros, while new developments are around 4,500 euros. "Classically, the price difference is 25-30%, but now the difference is approaching 40%. The average listing price for new developments is as much as 5,000 euros on average, which stretches the price difference to as much as 44%. As a result, the number of new development transactions is drying up, and as much as 90% of transactions were made on the secondary market in July and August," said Subatšjus. 

"The price of old apartments fell with the recent economic downturn, while developers have maintained the same level for new apartments. Over the past five years, more new developments in valued locations and in a more expensive price category have been completed, which both statistically and substantively increases the gap with older apartments," said Subatšjus.

"Many developers have indeed taken a conscious direction to build expensive apartments of above-average quality and location rather for the wealthy and less so to what might be called affordable mass-market development. Rather, the middle-class purchasing power has suffered with recent economic downturns, and therefore the focus is on the higher segment. A new apartment has become harder to afford for the average Estonian," noted Subatšjus.

"The apartment market is in a similar situation as buying a new car or an iPhone – those who have the desire and means buy the new model and the rest acquire the previous version," added Subatšjus.

According to Uus Maa's analysis director, the daily question now is whether and when new apartment prices will start to fall. Currently, the market is, similar to the general economy, consistently volatile month to month, and no major directional changes are visible. Since construction costs are rising with general inflation, no major price decline in new apartments is expected. Rather, with growing market demand, second-hand apartment prices will slowly rise to match new ones, which will make new developments attractive again," said Subatšjus.

"The money market also seems to believe in developers' ability to survive the difficult times. Bonds from real estate crowdfunding are being fully subscribed, which shows that investors are optimistic about the future, businesses are able to attract alternative capital, and even now large and rather high-end developments are emerging throughout the city," added Subatšjus.