The New Development Boom Has Reached Tartu, But Buyers Still Look Toward the Resale Market

Construction of new apartment buildings is in full swing in Tartu and its surrounding municipalities, with new developments already accounting for over 40 percent of apartment supply. Transaction statistics, however, show that most buyers still prefer second-hand apartments at a more affordable price level.

The Tartu real estate market is characterized this year by a deepening gap between supply and demand, according to Kinsvara24 CEO Urmas Uibomäe and Arco Vara Real Estate Bureau board member Peep-Ain Saar.

According to Saar, the Tartu real estate market has been moderately active this year, but primarily due to increased supply of new developments. In the Kinsvara24 environment, there were 583 Tartu apartments for sale in the first week of July, over a quarter more than at the same time last year. In May, however, apartment transactions were conducted over ten percent less compared to the same month of the previous year, and the median price remained almost unchanged. According to Kinsvara24 and the Land Board statistics, 632 apartment transactions were completed in Tartu in the first five months of this year, with 132 in May. The median transaction price was 2,350 euros per square meter.

A great many new developments are being completed in Tartu, and according to Saar, this will be felt in the market both this year and next year. New apartments already account for over 40 percent of all Tartu apartment supply.

"At the same time, there is a significant gap between buyer preferences and the price of new apartments. The price level of new developments is essentially 40 percent higher than the actual transactions taking place in the market. In some cases, the price per square meter of new apartment supply is already approaching 6,000-7,000 euros," said Saar.

According to him, selling such a large volume of new developments in Tartu would presuppose growth in prosperity and the addition of new businesses. "Tartu needs more people who would be able to purchase such real estate. Otherwise, it is difficult to justify such a large supply of new developments coming to the market," said Saar.

According to Saar, Tartu may repeat a scenario seen in Tallinn a few years ago, where the supply of new apartments grew faster than demand and a large surplus of new developments accumulated.

Buyers prefer cheaper second-hand apartments

According to Saar, recent purchase and booking statistics show that second-hand apartments at lower price levels are moving best in Tartu. "People are predominantly buying and booking residential space that is about a fifth cheaper than the second-hand market median price. The price level of such apartments is approximately around 125,000 euros," described Saar.

According to Uibomäe, increasingly buyers are setting prices on the Tartu second-hand market. There is a lot of supply and owners wishing to sell must reckon with price reductions.

More than half of transactions in Tartu involve two-room apartments. A buyer of such an apartment is usually looking for their first home. According to Saar, among these there are also rental market investors, but their share is rather declining because rental yield is in a downward trend in Tartu. Two-room apartments also attract interest from flippers, or investors who buy residential property for renovation and resale. A small but growing group of buyers each year is parents who purchase an apartment in Tartu for their child coming to study there.

Active development is also taking place in surrounding municipalities

According to Saar, active development is not limited to the city of Tartu alone, but extends to the municipalities surrounding it. The real estate market is developing rapidly in Kambja municipality, Nõo, and Ülenurme. The Raadi area in Tartu municipality is also filled with new developments.

"Where black currant bushes once grew and an airfield was located, cranes are now working," said Saar. According to him, many new developments are being built around Tartu because land is cheaper there and the process is often faster for developers.

In terms of transaction prices, Tartu municipality has already surpassed Tartu city, as new developments dominate there and second-hand supply is scarce. Nõo municipality's price level is on par with Tartu city, Kambja and Luunja municipality prices are slightly below the city's median price, but new apartments are also being built increasingly in these areas. Elva stands out from other municipalities, where most transactions involve second-hand apartments and new developments are scarce. For this reason, the median price of apartments in Elva is almost half lower than the Tartu level.

According to Saar, developments are visible around Tartu that previously characterized mainly the environs of Tallinn. "However, unlike Tallinn, there is no longer much room in Tartu city for new developments," she noted.

There is a shortage of new single-family houses in Tartu

According to Saar, relatively few house transactions are conducted in Tartu and individual expensive sales drive up the median price. Good building plots are difficult to find in the city, which is why new house construction is increasingly moving to Tartu's immediate surroundings. "In Tartu, you must demolish an old house before building a new one," said Saar.

According to him, new houses are being completed mainly in Tartu's surrounding municipalities. Single-family home developments are being carried out especially in Kambja municipality and in the Ihaste area of Luunja municipality. There are nearly four times more houses for sale in Tartu county than in the city itself.

According to Saar, demand for well-maintained city houses remains strong. "Beautiful houses are still being sought in Tartu, but supply is scarce. For this reason, a new and proper house in the city is already being asked for at 700,000 euros," said Saar.