Real Estate Market Slowed in June, Prices Rose

The hot June pulled down transaction activity in the real estate market while price levels rose in many places. Increasingly clear patterns are emerging regarding which price ranges have greater interest and where less.

Many have a justified question that if the median price per square meter often shows growth, then why is there talk of a real estate market slump. As with statistics, you need to look behind these numbers.

The market slump is best described by total volume. For example, if 10,417 apartments were sold across Estonia in the first half of this year, then last year in the same period the corresponding number was 13,214. The annual change is thus -21.2%. Exactly the same applies to total turnover: if in the first half of 2023 it was approximately 1.239 billion on the apartment market, then last year in the same period it was approximately 1.378 billion. The annual change is -10.1%.

Broadly speaking, similar magnitudes can be applied to all Estonian regions, although various local peculiarities and the shares of different apartment types can temporarily change them.

Since better condition or renovated apartments with smaller total area and thus lower total price are increasingly being sold (and the smaller the square meters, the higher the unit price), we get a situation where the market's total volume decreases, but there is no major downward pressure on the general statistical price per square meter.

 

Quality sells, the middle market struggles

The best and most actively selling apartments are smaller ones with lower total prices but in good condition or renovated, whose price per square meter in Tallinn is 3,000 euros and above. If such an apartment also has great design and is in a special building, we also see auctions.

Another market doing well is the very expensive apartment segment. This part of the market does live somewhat its own life, not particularly dependent on loan margins or economic fluctuations. Transactions take longer, but rather because there are fewer buyers, they have time, and choices are made so to speak on a sure footing. For example, in June, Estonia's most expensive apartment transaction took place, where a spacious penthouse changed hands for just under 2 million euros.

The so-called middle market is in the most difficult situation, where higher-priced quality apartments in interesting buildings meet typical residential spaces. While we see quick sales in the former because selection is limited, the second group, which makes up the majority, is in the most intensive price negotiations, since expectations do not match buyer offers or there are disagreements about renovation quality.

Reaching a transaction takes more time among mid-range apartments. This group consists of apartments in Tallinn with a price per square meter of 1,900–2,600 euros (requiring renovation – so-called move-in condition), but also apartments whose asking price is more than 3,000 euros, but renovation or building completion is about 20 years in the past and no longer meets contemporary expectations.

With exceptions excluded, the sale of new apartments is quiet. Market expectations here point to a more forceful price correction.

 

Warm weather and Midsummer Day slowed the market

In Tallinn, 807 apartments were sold during June according to the Land Board (947 in May), with a median price per square meter of 3,098 euros. If the price level rose 3.4% from month to month, then it rose 6.3% year-on-year.

In Tartu, 173 apartments changed hands during June (185 in May) with a median price per square meter of 2,426 euros. If the price level fell 5.8% compared to May, then it rose 12.4% year-on-year.

In Pärnu, 61 apartments were sold in June (86 in May), with a median price per square meter of 1,985 euros. If the price level rose symbolically 0.4% compared to May, then it rose 11.3% year-on-year.

In Narva, 67 apartments changed hands during June (74 in May), with a median price per square meter of 543 euros. If the price level rose 6.9% compared to May, then it rose 6.5% compared to June 2022.

Article author: Uus Maa Real Estate Bureau analyst Risto Vähi