Nothing Exciting Happens in the Real Estate Market Before Spring

The Estonian real estate market has reached a "ticking" phase, where there is no point in expecting major events before spring.

The October apartment market statistics were also characterized by the cheapening of second-hand apartments, the rise in prices of new residential spaces, and a low level of sales transactions. True, since the decline began a year ago, we can see some stabilization in a 12-month comparison.

The rental market has also become quieter, as the autumn so-called student rally has ended. Offerings have been increasing especially in Tallinn, where most new apartments have been completed, many of which were purchased for the purpose of earning rental income.

Although we face tax increases and economic decline ahead, one might perhaps see a small ray of sunshine in the fact that the major wave of interest rate increases aimed at controlling eurozone core inflation has now ended, and in the future we can expect a standstill and perhaps only a few individual increases. This could mean that the possible magnitude of mortgage payments will gradually stabilize, and knowledge in this respect about what sums we need to reckon with in the future may become somewhat clearer.

However, those waiting for a rapid drop in interest rates back to their former level will be disappointed, as neither the central bank nor anyone else is even considering it any time soon. Better lending conditions will therefore come rather as a result of competition between banks.

Apartment market stable

In October, 1782 apartments were sold throughout Estonia according to the Land Office data (1770 in September), with a median price per square meter of 1917 euros. During the month, the price level fell 4%, then 5% year-on-year. While transaction numbers have stabilized compared to both the previous month and a year ago (since the decline began in the autumn of last year), we are now also seeing that the price level has begun to fall. These two processes typically always move in tandem.

In Tallinn, 678 apartments changed hands in October (664 in September), with a median price per square meter of 2928 euros. While the price level rose 4.4% during the month, it rose 2.1% year-on-year. In Tallinn's case, the phenomenon that second-hand real estate has become cheaper and new apartments more expensive is clearly a factor. As new buildings continue to be completed, this asset class has a strong impact on statistics.

In Tartu, 119 apartments were sold during October (176 in September), with a median price per square meter of 2109 euros. Compared to September, the price level fell 9.9%, then 4.9% year-on-year.

In Pärnu, 99 apartments were sold in October (63 in September) and the median price per square meter came to 2410 euros. Compared to September, the price rose 38.7% and 25% year-on-year. Looking at both the volume of transactions and price growth, we see a clear connection to new apartments, which saw busy notary visits during October.

In Narva, 73 apartments changed hands in October (79 in September), with a median price per square meter of 510 euros. Both month-on-month and year-on-year, the price level fell equally – 4.3%.