Expert: The Price Difference Between Old and New Apartments Has Reached a Fair Level Over Time

According to Jaanus Laugus, the head of Estonia's largest real estate agency Uus Maa, during the last boom, prices of older and poorer condition apartments came anomalously close to new apartments, but now the gap has become fair again.

According to Jaanus Laugus, over the years the optimal price difference between new and second-hand apartments has been one-third higher in favor of new ones. "During market peaks, an anomaly has occurred several times where older apartments have come very close to the prices of new developments. However, according to Tallinn transaction statistics, a square meter of a two-room apartment in an old building now costs 2375 and in a new building 3176 euros, meaning the difference is again one-third in favor of new ones," said Laugus.

"The price gap has been restored as a result of a two-sided process. On one hand, prices of older apartments in residential areas have fallen about twenty percent, and real transactions are happening at a lower level than what is listed in portals. Price correction of residential apartments usually happens most quickly there, and that's also where the market starts to rise first," said Laugus.

"On the other hand, the asking prices of new developments have not fallen significantly, which has resulted in sales periods becoming clearly longer. In some places, price differences in favor of new apartments are also clearly greater than one-third, because developers have not lowered their prices. For example, renovated two-room apartments in Mustamäe cost 103,000 – 115,000 and similar apartments in new developments cost 145,000 – 180,000 euros. When the price of one real estate segment falls, it actually creates a similar expectation for others as well. Developers should pay more attention to this price gap, but it must also be understood that inflation and high construction prices limit price corrections," said Laugus.

"Since daily expenses are growing, people are critically reviewing their space needs, and residential real estate is becoming more rational and rather smaller. That's why there is now much greater liquidity and interest in residential apartments and lower price class apartments, where correction was faster and people are making more transactions based on life needs," added Laugus.

"Real transaction prices for residential apartments are already close to the bottom, but we could expect further correction for new developments. If a developer needs to actually sell – then they need to be flexible. Currently, new developments are being offered with parking spaces and kitchens included in the price, and although this is not discussed publicly, in reality there is clearly about ten percent room for negotiation," said the head of Uus Maa.

According to Jaanus Laugus, new developments at the lower end of the market with a square meter price of 3000 euros in Harjumaa are still selling well. "The biggest hit is luxury real estate, whose buyer segment is thin and focus is elsewhere. Exceptions are exclusive areas with high demand, such as Rotermanni or Noblessner, where prices remain stable," added Laugus.

Article author: Jaanus Laugus, Member of the Board of Uus Maa Real Estate Agency