tallinn real estate market review november 2009

8/8/2019 Tallinn Real Estate Market Review November 2009

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Goodson & Red team and Tõnu Toompark present:

Tallinn Property Market

2009 Q3 Tallinn property and rental market review



Tallinn Property Market

• Dawn is about to break, but it is still dark

• The rock bottom of purchase and sales prices is

close

It seems that the property market in Estonia is about to over-come the biggest difficulties in autumn 2009. Even though the

price decrease has slowed down, the purchase and sales

prices of property are still falling in all sectors of the property

market.

The turnover of residential mortgage loans in Estonia in the

first three quarters of 2009 was EEK 5.2 billion or more than

four times less than in the previous year. Loans are granted

very cautiously. The interest rate on residential mortgage

loans in September 2009 was 3.6%. Braver banks have once

again started to advertise residential mortgage loans, but the

terms are of course much stricter and getting a loan is almost

impossible for non-residents who do not have a local source

of income.

The consumer security index is on the level of -19 points. Con-

sumer security hit rock bottom in March 2009 when it hit -37

points or the lowest level during the 13 years that this indica-

tor has been measured. Consumer security has improved con-

sistently since March.

7382 property purchase and sales transactions were con-

cluded in Tallinn in the first three quarters of 2009, which is

one-third fewer than in the previous year. The number of

transactions concluded with apartment ownerships in the

same period of time was 3266 or 39% less than in the previous

year.

According to the property portal kv.ee, there were 7742 apart-

ments up for sale in Tallinn in September 2009. The number ofsales offers is decreasing slowly, but stably. The number of

apartments for sale was 10,184 just a year ago.

The average price of a square metre of apartments in Tallinn

according to the offers in kv.ee was EEK 19,228. The offer

price a year ago, in September 2008, was 26,241 EEK/m2. Theoffer price has decreased by 27% in a year.

According to the data of the Land Board, the actual average

price of purchase and sales transactions in Tallinn in the third

quarter of 2009 was 12,220 EEK/m2 or 41% less than in the

previous year.

There were 1972 sales offers in the centre of Tallinn in Sep-

tember 2009 and their average offer price was 25,352 EEK/m2.

According to the data of the Land Board, the actual average

transaction price in the centre of Tallinn was 18,316 EEK/m2.

Not many new developments are brought to the market in the

current conditions. Any new development projects that are

being launched are small residential buildings with no more

than 20 apartments. Big developers are still on standby, but

they have promised to launch new projects in the next year.

Forecast:

• There are more potential buyers looking, the number of

transactions with residential premises is going up

slowly, but prices are still decreasing.

• Both the global and local financial industry are still

weak, the labour market is not expected to recover un-

til 2011. Therefore money supply will remain low and

the number of households who struggle with their loan

repayments could still increase. Our property market is

still tense.

• There are no many projects in good locations that have

been frozen or that are waiting for the sales prices to

start complying with the market. It means that thestock of new apartments will remain very low in the

next year, which may contribute to the preservation of

the current price level.



Rental Market of the Centre of Tallinn

• The ratio of rent prices and income has improved

for consumers.

• The level of rent prices has stabilised.

• There’s shortage of quality product, no new de-

velopment are being introduced to the market.

Rent Prices

According to the data of the kv.ee portal, the prices of

rental offers in central Tallinn have decreased by 32% to 93

EEK in a year. Today, it can be said that the price level has

stabilised.

There are more and more cases where several peoplewant to rent the same flat, which means that the owner can

let it out at the offer price, i.e. without bargaining about the

price.

The long-term prospect of rent prices depends largely on

the general conditions on the market. We can assume that

rent prices will be on the same level as today in a year’s

time if the economy recovers in the nearest future as ex-

pected. However, we cannot forecast a price increase.

Vacancy

There are not many new offers arriving on the market. The

number of premises to let has increased by 41% over the

year, but decreased in the last four months.

Some offers may appear on the market on account of

speculatively acquired property, where owners feel stran-

gled by loan repayments decide it would be better to fur-

nish their empty apartments and rent them out.

Speculatively acquired apartments have often not been

rented out because owners have not wanted to invest in

furnishing the apartments. It is almost impossible to rent

out a completely empty apartment.

At the same, the number of new apartments arriving on the

market is smaller than the number of apartments taken onrent. It can therefore be said that the number of premises

to let is decreasing even further.

We do not expect to see any significant changes in demand.

Demand is affected the most by the general economic envi-

ronment and the labour market. It can be said that demand

remained stable all through the previous year.

As supply is decreasing and demand is remaining stable,

we can presume that vacancy on the rental apartment

market in the city centre will decrease.

The estimated vacancy rate today is 15%. We can presume

that vacancy will have dropped to 10% in a year’s time.

Tenants

People who rent in the centre of Tallinn may be character-

ised as people who, in addition to the good location, prefer

the convenience of not owning property.

Many people who rent apartments in the centre of Tallinn

are local, but the proportion of foreigners is somewhat big-

ger in the centre than in other districts of Tallinn. The scale

of the areas of activity of lessees is broad – people who

rent range from (foreign) students to senior executives of

companies. It is difficult to highlight a common denomina-

tor.

Period of Rent

The duration of the average period of rent is six months to

one year. Lessees often prefer contracts without a speci-

fied term as they can be cancelled at short notice.

Rented apartments are often seen as a short-term solu-

tion. The temporary nature of renting may be caused by the

person working in Estonia temporarily, insured events,

changes in the marital status and studies.

Furnishing Rental Apartments

Apartments that are to let could be furnished. They must at

least have kitchen furniture, light fixtures, curtains and



curtain rods, sanitary equipment. Apartments that have not

been furnished to the minimum level or apartments that do

not have kitchen furniture are a challenge for the lessor,

which usually does not yield a positive result.

It is easier to rent out an apartment if in addition to the

minimum package, it also has a washing machine, ward-

robes and shelves, i.e. only lighter furniture that is easierto remove is missing.

It is the easiest to let out apartments that are fully fur-

nished so that the lessee can immediately move in with

their clothes and dishes and the lessee does not have to

incur any extra expenses.

It is advisable for all lessors to consider furnishing their

apartments if they have not managed to find lessees yet. A

completely empty one-bedroom apartment can be fur-nished for approximately EEK 100,000 to 150,000.

Regions

The Old Town differs from the other regions in central Tal-

linn as it has a parking problem. The big advantage of new

developments is that parking has been solved either with

parking spaces in the yard or a car park under the building.

Lessees prefer regions in the city centre that are easy to

access both by car and by foot. Examples of this are Tatari-

Sakala-Süda-Liivalaia Streets up to Tartu Road. Also Põhja

Avenue.

The high-rise Tornimäe building and the large exclusive

apartments in the Foorum buildings can be highlighted

separately as the good location and prestigious buildings

mean that apartments can be let out for a price that ex-

ceeds the market average.

Agency Fees and Good Practice

The Estonian tradition where the agent’s fee is paid by the

lessee is slowly disappearing. Lessors are beginning to

understand that they are the ones who need the agent’s

services. This means that more and more lessors are pre-

pared to pay the agent’s fees themselves.

As usual, the invoices submitted by all service providers

(security, cable TV, telephone, electricity, gas…) and the

apartment association are added to the agreed rent price.

As a rule, the lessee enters into contracts with communi-

cations service providers in their own name.

When an apartment is taken on rent through the RED

Group, then the RED Group organises subscriptions for

services and thereby makes taking the apartment on rent

easier and cheaper for the client.

Summary

Rent prices in the centre of Tallinn have stabilised. A qual-

ity apartment that is in a good location and well furnishedcan be rented out in a relatively short time, often in weeks.

The slowly decreasing supply is reducing the difference

between the offer price and the actual transaction price.

Activity on the rental market of Tallinn has continued to

increase at the time when the number of purchase and

sales transactions has decreased. The number of premises

to let has decreased considerably.

The decrease in property prices has made the people par-

ticipating in the owner-centred local property market that

renting residential premises is a risk-free and good solu-

tion.

The latter is supported by the conservative loan policy and

the low security of consumers that also affects the rental

market participants.

Forecast:

•

Tenants prefer furnished apartments; sales periodsare getting longer for unfurnished apartments.

• More and more lessors are realising that the agent’s

fee has to be paid by the lessor and not the lessee.

• Vacancy is decreasing and the level of rent prices is

stable, however, the market remains strongly af-

fected by the general economic environment.

Price Comparison

* Furnished apartment in a good condition that complies with minimum

requirements. The rent price range of larger apartments is too wide to be

highlighted in this table.

Size of apartment Rent price range*

1-room apartments 3000-5000.-





Buy-to-let Investment

• Value and price are not in balance

The rate of return of the rent business is currently rather

low and usually remains between 3 and 5%. We are talking

about the net rate of return in terms of cash flow minus the

costs associated with owning the apartment. The given rate

of return does not consider the possible decrease or in-

crease of the value of the property.

Rate of return in terms of cash flow at the top of purchase

and sales prices in 2006 and 2007 was even 1 to 2%.

The possible increase of the value of the property must be

considered when taking a look at the rate of return of a

rental apartment. We can presume that the prices of apart-ments will be higher in five years’ time. This means that

the possible income from the increase in the value of prop-

erty is added to the rate of return in terms of cash flow.

Forecast

• The already low rate of return will hold or increase

slightly on account of decline in sales prices, reduc-

ing vacancy and stabilising rent prices, but not sig-

nificantly.

• The projected future of the purchase and sales

prices of residential premises remains an important

factor in the rate of return and cost-effectiveness of

the investment.

Standard Transactions

1-bedroom apartment in the centre of Tallinn

Rent: 6,250 EEK + utilities (asking price 6,500 EEK)

Details: 53.2 m2, III floor, big balcony, bathroom w/ bath-

tub, fully furnished

Pros: downtown (Foorum), new building, elevator, fully

furnished

Cons: no allocated parking

1-bedroom apartment in Ilmarise block

Rent: 3,900 EEK + utilities (asking price 3,900 EEK)

Details: 41.9 m2, I floor, unfurnished (kitchen only)

Pros: centre of Tallinn

Cons: I floor, no allocated parking, unfurnished

5-room attic apartment in Tallinn Old Town

Rent: 18,000 EEK + utilities (asking price 22,000)Details: 278.7 m2, V floor, furnished

Pros: spacious, sauna complex (Jacuzzi, steam sauna,

sauna), fireplace in the living-room and sauna, 3 bath-

rooms, large kitchen

Cons: no elevator and allocated parking, on a busy street

in Old Town

* all the transactions were “without commission” for the

tenants



Goodson & Red Team

Goodson & Red is a passionate international property con-

sultancy dedicated to delivering premier residential and

commercial property services in Tallinn.

Through more than 6 years of consistency in one of the

most rapid property markets in Eastern Europe we have

developed an enviable reputation for our in-depth market

knowledge and expert, considerate personal service. Al-

though our knowledge is extensive both in the letting/

management and the selling/investing process, in Tallinn

and throughout Estonia we are widely regarded as the

market leader in our niche of the property market: serviced

short-lets, mid- and long-term rentals, management ser-

vices, home search, as well as buy-to-let consultancy.

At Goodson & Red we embrace change and are constantly

challenging tradition because we have a strong desire to

improve the way our industry operates.

Unlike some established estate agents, who offer every

location in Estonia and around the world and claim to be

experts in all them, we specialise, we grow gradually and

study each our market thoroughly, and we are committed

to going beyond the sale. Our philosophy is plain: property

is our passion, we perform with integrity and values, and

relationships are most important for us; we constantly en-

deavour to provide ease and comfort through considerate

personalised and professional service to all our clients,

whoever they are and whatever their needs for property in

Tallinn.

Our services include comprehensive property brokerage

services for sellers, home search, long and short term let-

tings services and a comprehensive professional manage-

ment service for landlords. We also offer foreign buyers

consultancy to help investors diversify their portfolio, to-

gether with a development consultancy service, providing

effective marketing and branding for developers.

Whatever your requirements for Tallinn property, Goodson& Red is perfectly positioned to help you achieve your aims.

Please do not hesitate to contact should you have any fur-

ther questions.

E-MAIL us [email protected]

CALL us on +372 666 1650 or +44 20 8816 8174

VISIT us in person at Jõe 5, Tallinn 10151



Goodson & Red Property ExpertsRED Group PLC, Jõe Str 5, Tallinn 10151

Ph: +372 666 1650 / +44 20 8816 8174E-mail: [email protected]

Www.goodsonandred.com

tallinn real estate market review november 2009

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