Expert: Large Volume of Deposits Keeps Real Estate Market Frozen
Eesti Pank announced that household savings exceeded the 12 billion euro mark for the first time in March. According to Igor Habal, a member of the board of Uus Maa, Estonia's largest real estate agency, this means that a large portion of free capital has been placed in fixed-term deposits, which will slow down transactions over the next six months to a year.
"The volume of household savings has been growing for the seventh consecutive month, increasing by 141 million euros monthly and 748 million euros annually. Particularly noteworthy is that the volume of fixed-term deposits increased by 102% year-on-year," emphasized Habal.
"For the real estate sector, this means that a large portion of free capital will be off the market for six months to a year. People expect that the situation and prices are unlikely to change significantly in the near term and rather that real estate prices will fall in real terms, as inflation exceeds real estate price growth. Additionally, interest rate cuts will make real estate more affordable in the medium term. Since the interest rates offered by banks currently exceed inflation, people are putting free capital to work in the meantime," said Habal.
According to the board member of Uus Maa, growing savings indicate that there are no major systemic problems in the economy. "This is also confirmed by the very small volume of residential loans in arrears, which accounts for only 0.2% of total loan volume," said Habal.
"People have been conservative in borrowing and wage growth is already outpacing inflation. The growth in savings also indicates that incomes are exceeding expenses, savings are being created, and when at some point free capital starts to accumulate more, it will be invested in assets," said Habal.
"However, at the moment the savings money is off the real estate market and changes will take time. The conditions are in place for 2025 to be quite a good year for the real estate sector," added Habal.
