Four Real Estate Trends in 2023
Real estate buyers need to be cautious this year – if the sales forecasts made no longer hold up, it could prove fatal for many projects. Most real estate developers share this view.
The Estonian real estate market has been a relatively stable safe harbor for as long as it has existed. True, even here the occasional exception proves the rule, when about 14 years ago the American financial crisis dragged the entire world with it, including the Estonian market. After a couple of years of decline, however, price increases continued with irresistible certainty and have set new records despite subsequent global crises.
An important fact is that this is not an elitist investment instrument, but in the broadest sense a marketplace for the general public. Few are those who have no direct or somewhat indirect contact with what is happening in the real estate market.
As a definite fact, real estate is the primary source of wealth for Estonian households and real estate investment is a nationwide national sport. This also explains the widespread interest in what is happening in the market.
Despite its relative stability, the real estate market is not standing water and many factors continuously affect its functioning. For my part, I would highlight four of the most important 2023 trends that both buyers and sellers should consider.
Apartment prices are falling
Official price statistics are inevitably affected by the fact that the structure of residential property sales is changing. Namely, significantly fewer new apartments have been started in Tallinn over the past year than before. The same can be said of commercial premises.
Therefore, fewer new apartments at lower prices will be completed in the coming quarters compared to before, which will lower the statistical average price of residential properties. The official average price decline is likely to amplify in the apartment market as well and will force sellers to be even more flexible. Thus this year brings very good buying opportunities in real estate.
Financing options do not worsen, bank lending margins decline
The main reason for this is strong competition in the banking market. As general uncertainty and the sharp increase in real estate prices reduce the number of borrowers, this intensifies the struggle between banks for creditworthy clients.
Euribor's rapid growth gives financiers additional room to make concessions, which is why a decline in margins can be expected. Thus, overall, new borrowers' interest costs may not rise as quickly as euribor, but rather more moderately.
The choice of housing increases
Despite Tallinn city government's inability to issue permits at a reasonable pace for the construction of new housing, rapid price increases and a normalized construction market provide sufficient motivation for developers to restart postponed projects. This is why the choice for buyers is expanding. Since each new housing purchase typically frees up one existing unit, supply in the older apartment market also increases.
The time for speculation is over
Moderate price correction is likely to put pressure particularly on less experienced real estate developers who entered the market in the past year, that is, at the price peak.
Both land and construction prices have been very high and if the sales forecasts made no longer hold up, it could prove fatal for many a project. Buyers should therefore be very careful about who they entrust their down payments to. Not all that glitters is gold.
Intensifying competition in the sales market will likely also end price anomalies where developers can ask 4,000–5,000 euros per square meter in locations that in no way justify such a price level. The time for speculation is, for now, over!
Article author: Kristi Tamm (Uus Maa Business Real Estate Consultant)
