Student Arrival Sets Tartu Real Estate Market in Motion – When to Buy and When to Rent?

According to Kinnisvara24 data, the rental season in Tartu this year started earlier than usual. The high rental prices in the university city have created a situation where families are considering buying an apartment instead of renting one. When buying might be a sensible solution is explained by Karin Ossipova, head of home loans at Coop Bank.

According to data from the Kinnisvara24 portal, people began actively searching for suitable rental apartments in Tartu as early as June, while in previous years the rental market became more active a month later, after universities published their admission results. One- and two-bedroom apartments are most sought after in the areas of City Centre, Karlova, Supilinn, Tammelinn, Annelinn, Ülejõe and Veeriku, which shows a preference for living within walking distance of the university.

The portal shows that the average rent for a one-bedroom apartment is currently 340 euros per month and for a two-bedroom apartment 504 euros. Compared to last year, rental prices have increased by five and ten percent respectively.

The sales market has been more stable. The average price for a one-bedroom apartment is approximately 89,900 euros and for a two-bedroom apartment 141,255 euros. The most popular areas are Ülejõe, Annelinn, Tammelinn, Veeriku, Jaamamõisa, City Centre and Vaksali.

According to Ossipova, it is worth comparing the total cost of renting and buying an apartment over the period of use, not just monthly payments. "If it is known that a young person will study in Tartu for at least three to four years and the family has the opportunity to buy an apartment, it is certainly worth comparing the total cost of both options. Just as important as the monthly payment is what the family will do with the purchased property after their studies," said Ossipova.

Based on statistics from the Kinnisvara24 portal, renting a 340-euro one-bedroom apartment over three years costs approximately 12,240 euros, assuming the owner does not raise the rent during that time. Utilities and communication costs are also added to the rental costs. According to Ossipova, the monthly expense can be similar even if the apartment is purchased and instead of paying rent, a home loan is paid. For example, purchasing a one-bedroom apartment for 89,902 euros and entering into a 30-year loan agreement results in a monthly payment of 372 euros.

What costs a young person needs to consider when buying an apartment, what part of the loan payments is actually an expense and what part is an investment, is shown by Ossipova through the following calculation.

• Apartment price: 89,902€

• Loan amount assuming a 15% down payment in the transaction: 76,416€

• Loan term: 30 years, annuity schedule

• Monthly home loan payment: 372€

• Interest payments made over three years, i.e. direct expense: 9,297€

• Principal of the loan repaid over three years, i.e. investment: 4,087€

• Estimated value of the apartment after three years +10%: 98,900€

• Estimated cost of home insurance over three years: 200-240€

• Costs associated with apartment purchase (expert appraisal, notary fees and state fee): 880-900€

According to Ossipova, in the first years, interest costs make up a larger part of the monthly home loan payment, which is why comparing buying and renting should not be reduced solely to which solution is cheaper over three years. "One should look at the whole picture – the family's financial capacity, the future use of the apartment, and what the value of the property could be in the future," said Ossipova, adding that buying an apartment is not the right solution for every family.

"If future plans are unclear or the purchase would leave the family's financial buffer too small, renting may be a more sensible choice. However, if the apartment is planned to be used even after studies or if it will be rented out, it is certainly worth considering the purchase option."