Real Estate Expert: Bureaucracy Still Keeping Construction Site Prices High

According to Danel Talpsepp, head of Uus Maa Commercial Real Estate, Estonia has a shortage of development properties in both residential and commercial real estate sectors due to bureaucracy, which keeps prices high even during downturns.

"Although the commercial real estate sector is currently rather quiet, for example in development plots there is clearly a shortage and prices remain stable. In Tallinn, it is very difficult to coordinate any planning in a reasonable timeframe; rather, the periods have become longer. In nearby municipalities it is somewhat easier, but still complicated and time and resource-consuming. While the building permit processing period should legally be 30 days, in reality the process takes six months to a couple of years. Hoping to get a detailed plan in less than five years is already very optimistic," said Talpsepp.

"It is entirely reasonable that there should be a balance between developers' interests, living environment and society's expectations, but often the obstacle is simply bureaucrats' conservatism and convenience. According to the valid general plans of municipalities and cities, only a very small portion of land is such where something can and makes sense to develop, which is why properties in good locations and with visibility essentially run out. This affects both housing and commercial building development," Talpsepp explained.

"Properties with the necessary building permits for construction are rarely on the market, and sometimes transactions are made at utterly unrealistic prices. In summary, this makes both housing and commercial real estate development expensive. For example, the price difference between agricultural land and a development plot with necessary permits can be a hundredfold, even though the parcel is the same," said Talpsepp.

"The biggest shortage is in Tallinn and development plots along the main highways leading out of the city. Especially those where large volumes could be built – for example, production or logistics centers of 20,000-40,000 square meters. Larger buildings often conflict with the general plan, and developing them requires a detailed plan that modifies the general plan, which in turn means significant additional bureaucracy," said the head of Uus Maa Commercial Real Estate agency.

"Therefore, development plot prices rise to new heights over time and sellers prefer to wait. For example, the price of a larger development area in Rae municipality quadrupled over the last three to four years. Bureaucracy is not becoming simpler and requirements tend to increase every year," noted Talpsepp.

According to Danel Talpsepp, Estonia's rampant bureaucracy makes real estate development, business, and regional development more expensive and complicated. "German investors who have visited Estonia recently complained that in their home country it is possible to process a detailed plan for an entire district in two years, but here one can argue about a single building for ten years," added Talpsepp.