The Major Real Estate Market Surge Is Over for Now

Although the real estate market is experiencing a major upturn and the number of sales offerings is growing, well-quality and properly priced apartments and houses continue to sell successfully.

Real estate price increases have been significant over the past year and a half, with growth occurring across two cycles. The first was driven by the previous year's growing economy and active investment, and the second occurred in the first half of this year largely due to rising material and construction costs and a shortage of real estate supply.

A third consecutive price spike could no longer be sustained by consumer purchasing power and confidence. Therefore, when selling real estate now, one must be realistic and not expect that the recent price rally can be repeated in the near term.

Quarter ended with a decline

The third quarter was generally still active in the Estonian real estate market, but September already showed signs of slowing down. People's minds have been preoccupied with everyday concerns and real estate purchases have taken somewhat of a backseat.

Thus, in the third quarter, 12,452 real estate purchase-sale transactions took place across Estonia, which is 12.2% less than in the second quarter of this year. Compared to the same period last year, transaction activity declined by 14.8%.

Similar movements occurred in the apartment market. In Tallinn, 2,441 apartments were sold in the third quarter, which is 11.6% less than in the second quarter. At the same time, compared to the third quarter last year, apartment sales have shown a 1.6% increase. The median price per square meter came to 2,776 euros, which is 1% lower compared to the second quarter, but 26.9% higher compared to the third quarter of 2021.

The movements in Tartu's apartment market have also been largely similar to general trends. In the third quarter of 2022, 665 apartments were sold, which is 17.2% less compared to the second quarter and 2.9% less compared to the third quarter of 2021. The median price per square meter of an apartment averaged 2,219 euros in the third quarter, which is 1.3% less compared to the second quarter, while compared to last year's third quarter, the growth has been 25.8%.

The calm at the end of the third quarter has continued in the current fourth quarter, whose first two months have been at significantly lower transaction levels than before.

Price increasingly important for buyers

The above was statistics that largely reflect an optimism-filled growth period. Now we are in a situation where the market is complex and alongside quality and location, the price of real estate is becoming increasingly important.

So it can be said that currently and in the near future, properly priced quality real estate sells, such as new or near-new properties, premium-class real estate, and apartments and houses that are special in some way. Also selling quickly is real estate in much-sought-after locations, which is disposed of quite rapidly.

There is also greater demand for new townhouses and semi-detached houses located slightly outside the city, in the Tallinn ring road area, where prices are somewhat more friendly to young families.

Among apartments, newer buildings in areas bordering the city center remain more popular, where there is some nature and everything is within reach. Also selling well are near-new renovated panel apartment buildings "on the hills," whose prices can be significantly higher than the area average.

Heating system is important

Unfortunately, some sellers are still caught in last year's trend where every property was sold even 10–20% above market level. Now, however, such properties are standing unsold and the reason need not be sought far: clients' purchasing power and willingness to make a decision have declined. The effect is also like a cold shower from not the most optimistic economic forecasts, the rise in Euribor, and the approaching high heating bills.

Properties that are priced too optimistically or that require extensive and costly renovation are not selling well. The uncertainty in construction costs and expensive materials do not favor serious renovation work, which is a major expense for many at the moment.

Therefore, there are also not many so-called flippers on the market who would want to buy a property requiring major renovation, fully renovate it, and then resell it.

Also relevant is the energy efficiency of houses or apartments. In apartments and houses with outdated heating systems or gas heating, sellers would benefit from replacing or modernizing the heating system themselves. This way they gain both in sales time and price.

More expensive real estate is also somewhat on hold if it is not a property with a direct home exchange need. Even otherwise properly priced near-new detached houses or larger apartments exceeding half a million euros are objects that are not easy to sell at the moment. However, if the prospective buyer cannot postpone the home exchange to the future or the property is located in a popular area, the transaction can also happen faster.

The right strategy is important

In summary, it can be said that every piece of real estate has a buyer, it's just that in some segments there is more activity and in others less. In these difficult times, proper pricing and sales strategy are important, through which it is possible to save both money and time, and in this regard, a real estate agent can always help as a specialist in their field.

Real estate investment remains a good protection against inflation. If it is a matter of a home and a home exchange is planned, then there is no bad time for it either, because buying and selling at the same time means that both the sales and purchase price are at the current market level, which means there is neither profit nor loss.

Article author: Marek Kirjanen (Uus Maa Makri office licensed real estate broker)