What Determines the Price of a New Home?
Searching for a new home can be an exciting and thrilling time – anyone who has ever planned to move house can confirm this. The supply of residential properties on the market is very diverse, raising the question more than once about how real estate prices are formed and what they consist of. Why, for example, can a 50-square-meter apartment in Tallinn cost more or the same as a 150-square-meter house in Saue municipality? Why does an apartment in a renovated building with a tram running regularly under its windows, causing constant noise, cost more than an apartment next to a park? Housing developer Bonava's experts explain what determines real estate prices.
Land value
Land acquisition is the first step real estate developers take to bring new homes to the market. This can be undeveloped land, such as a meadow, or, conversely, developed land that requires additional investments for demolishing or renovating existing buildings. The value and attractiveness of land is primarily determined by its location – whether it is in the city center or in a well-accessible residential area with extensive services. It is also important whether there are parks, forests, educational institutions, medical institutions nearby, and the availability of quality transport connections for both public transport and other modes of transport. On the other hand, major roads and power lines near the location, as well as other factors that tend to cause significant inconveniences to residents, such as increased noise levels, can reduce home prices.
Land value and location
The market price of new projects is certainly influenced by the area of the property being purchased and the building conditions of the specific area. The denser the land can be built, i.e., the more and taller buildings that can be constructed, the more new homes can be offered to buyers. This allows the developer to reduce certain costs – for example, in the project development phase and construction management phase. The size of the property also significantly affects how many parking spaces, play areas, rest areas and green spaces can be created on the property in the respective municipality. In different municipalities, the mandatory parking space standards are quite high and largely determine the building solutions on the property and the number of homes to be built. Additional costs also arise when existing buildings need to be demolished on the property, when the property has difficult access, or when the property is too small to accommodate the construction equipment and materials needed for the construction process, resulting in the need to rent additional land. Also important is the construction of utility networks: there is a significant difference in whether they need to be built from scratch or whether it is possible to connect to existing ones.
"When talking about the urban environment, today we are looking largely at already built-up areas or former industrial sites, which typically require the demolition of existing buildings and structures. As a result, the home price may be slightly higher, but it also has added value – a restored and quality urban environment, which is typically located in a good and valued, well-established location with good access and everything else needed for comfortable living," highlighted Bonava's development department head Martin Rikolas.
Various types of restrictions
Both land acquisition costs and further development can be significantly affected by various possible use rights, such as easements. If already developed land in the city center or a specific building requiring renovation is purchased, its location in the city's historical district or the status of the building as a cultural monument can create additional difficulties. To build a completely new building in the city center or renovate some existing building, real estate developers typically face much more complicated issues than when developing projects outside the city or in other districts. Land costs are always higher in the city center, and you also need to take into account the architectural requirements of the area, but which in general increases the market value of the residential space and as a result such a home is also worth more.
Construction planning and obtaining a building permit
Everyone who plans construction work, including real estate developers, must follow certain construction approval procedures. Construction work – reconstruction of a building or apartment, construction of a new building, renovation, restoration, preservation or demolition, as well as installation of utility networks – can only begin when all necessary approvals and permits have been obtained.
Architecture, interior design and construction
Two important aspects in the cost of new projects are interior design and architecture. All designers play a very important role in the layout of homes. Functional living spaces where every square meter is thoughtfully designed should be every developer's concern. "At Bonava we can be proud of this process because as main contractors we manage home construction through all phases – from design and construction management to sales and warranty services. The advantage of our in-house team is also that people are already accustomed to working together and understand the solutions used in the company, thereby ensuring a higher quality end result," noted Bonava's design department head Kerli Koolma.
Any subcontracting brings additional costs. On the other hand, when talking about construction, it should be noted that its costs are affected by the construction technologies used such as blocks, prefabricated reinforced concrete, etc., as well as the soil on the property – piles, etc., may be necessary. Additional costs also come with any non-standard construction or additional features. Underground parking spaces significantly affect the apartment's sales price, the construction cost of which can range from €15,000 to €25,000 per parking space, but in Tallinn today, construction without these spaces is usually not possible.
Home finishing and landscaping
Each apartment's market value depends on its finish and the amenities available in the building; for example, an elevator in an apartment building can significantly increase the apartment's price. The apartment's price is certainly affected by which finishing materials have been used. Ceiling height also affects construction costs – the higher the ceiling, the greater the material consumption and accordingly the cost also increases. Also important are the costs of heating systems (floor heating or radiator heating), ventilation and other technical systems. The building façade can use different materials – wood, concrete, panels. The simpler the building, the lower the costs; the more complex it is (special elements, protruding parts), the greater the cost. Balconies also create additional costs due to their structural solutions. In addition, an important aspect is the maintenance of the territory – rest areas, playgrounds, parking lots (covered or uncovered), green areas and similar. Also, today urban gardens are becoming increasingly popular, which provide an opportunity for cooperation with neighbors and make the environment cozier and closer to nature.
Common areas, storage spaces, additional features
A homeowner is probably very happy with a cozy terrace and a tasteful foyer, but comfort also increases costs. Additional costs can be created by the construction, furnishing and decoration of various common areas and storage spaces, the construction of a roof terrace and various technological solutions: electric charging stations, "smart home" solutions and other features. All additional elements shape and affect the home's market value.
When thinking about a home in a new project or a building with history, you should take into account that old buildings require significantly more additional costs for building insulation and heating, since new and planned projects already meet the highest energy efficiency requirements as standard. On the other hand, depending on the area, an apartment in a renovated building can be much more expensive than equivalent apartments in other buildings. Therefore, before deciding on a new place of residence, it is necessary to assess the overall value and benefits of the new living space.
Just assessing the surroundings plays a decisive role in making the final decision: a grocery store and a transport stop should be within reach or a 5-minute walk from the house; commuting to work on foot, by personal car or by public transport should not take more than 20-30 minutes; whereas a park, pharmacy, food and health care facility should be within 10 minutes or about 1 km walk distance.
It is important to buy a home from a trustworthy developer who can demonstrate long-term experience, as this ensures the quality of the property purchased and good customer service even after the purchase is completed.
"It should be kept in mind that our needs change over time, so buying a home should not be viewed as a lifelong purchase. We don't know what the future will bring, so it's a great advantage if you can buy a home that meets your current lifestyle and needs. In our developments, the surroundings of the buildings are designed so that the movement paths of cars and children don't cross, and there are movement opportunities and rest areas for residents of all ages," noted Kerli Koolma.
