There's No Room for Emotions in the Real Estate Market

The real estate market is in a similar situation to a grocery store – people buy what they absolutely need or what's on sale, and expensive impulse purchases are rare.

Although there is no significant decline visible in average square meter prices, the market's bottom is noticeable through reduced transaction activity compared to the same period last year. And there's really nothing to gloss over here – we are at the bottom of the real estate market and will be scraping along it for a much longer time. Consumer confidence is low and the "wait and see" principle is increasingly prevalent.

If location, location, and location are usually considered the three main criteria for real estate, then nowadays these words are often replaced by price. Property sells if it is affordable from a loan capacity perspective. Of course, there are still impulse purchases and sales of more expensive properties, but the momentum seen one and a half to two years ago no longer exists in this segment.

Therefore, when selling real estate, you should do the same as you expect in a grocery store – the product should be fairly priced and accessible to consumers. The time for experimentation is over and only property that matches market prices will sell.

When discussing real estate market prospects and possible recovery, we must look at the reality of the economy, of which the real estate market is a mirror. Before uncertainty in the economy decreases, neither will sentiment in the apartment and single-family home market.

Transaction activity in decline

Estonia's apartment market declined in September, and according to land registry data, 1,742 purchase and sale transactions took place across the country (1,932 in August). The median price per square meter was 1,994 euros, which is 2.2% less than in August, but 2.7% more than in September last year.

Transaction activity also decreased in Tallinn. 662 apartments were sold (682 in August), with a median price per square meter of 2,805 euros. While the price level increased by 0.7% compared to August, it increased by 1.4% year-over-year. In Tallinn, we see increasingly more price level stability and changes have remained within what could be called the margin of statistical error.

While new developments affected Tartu's statistics more in August, there was a decline again in September. Thus, 173 apartments were sold (208 in August) and the median price per square meter was 2,315 euros. The price level fell 11.6% month-over-month, while it increased 14.3% year-over-year.

In Pärnu, 63 apartments changed hands in September (70 in August), with a median price per square meter of 1,737 euros. Compared to August, the price level fell 3.1% and declined 5.8% year-over-year.

Contrary to other cities, transaction activity in Narva grew. In September, 78 apartments changed ownership (63 in August), with a median price per square meter of 532 euros. Compared to August, the price level increased by 7.5% and grew 2.1% year-over-year.

 

Article author: Risto Vähi, Uus Maa Real Estate Bureau analyst