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Posted by andrew, on January 20th, 2012
Tags: economic recovery, estonia property, Estonian Banking Statistics, Estonian economy, global reports, property investment, property news, tallinn property, Tallinn Real Estate. SNC-Lavalin Homburg Property Management, a company owned by two Canadian capital holding companies, has opened an office in Tallinn. Similar ventures are also being opened in Riga and Vilnius.
The company was founded by one of the biggest engineering, construction management and maintenance companies in the world, SNC-Lavalin Group Inc., with more than 100 years’ worth of experience together with the Baltic management and maintenance company Homburg Valda, which belongs to the Homburg group of companies. SNC-Lavalin Group has been developing and operating in the real estate field in Canada, the USA and the Netherlands for more than 40 years already.
According to SNC-Lavalin Homburg Property Management director Algirdas Augustaitis, incentives for the establishment of the joint venture included the existing work experience enjoyed by Homburg Group in the Baltic States, along with market development potential, especially in the field of public-private partnerships.
“Shortage of capital at the creation or improvment of infrastructures are problems not only in developing countries and not only in economically tight times. Public-private partnerships are very common in Canada, and bringing our long-term experience to Estonia should only be beneficial in the long term” said company director Algirdas Augustaitis.
In Algirdas’ opnion, SNC-Lavalin’s team was able to attract the largest possible level of capital even as the market is trying to overcome the most difficult circumstances as it is. For instance in 2010 the McGill group of university health centre clinics was backed with a 732 million US Dollar (approximately 573.6 million Euros at the time of writing) investment, which is currently the largest sum in the history of public-private partnerships in Canada.
With public and private partnerships undertaken in the performance of specific infrastructure projects such as railways, airports, bridges, hospitals and prisons, the parent company is planning to consolidate firms’ human resources.
In terms of offering its services to business enterprises operating in Estonia, SNC-Lavalin Homburg Property Management focuses its activities mainly towards retail, office and logistics centres. The new company’s director stated that the main competitive advantage it offers is a better relationship between price and quality than potential customers are currently offered in the market.
The company opened its Tallinn office on January 17th. The original article (in Estonian) can be viewed here.
An increasing number of apartments in rural areas and small towns in Estonia are being left abandoned, as their owners seek employment overseas, according to a report by Sven Randlaid on the website of ERR, Estonia’s national broadcasting network, citing real estate expert Risto Vähi.
In a conversation with Estonian radio station Vikerraadio, Vähi explained that this is often the case since tenants are difficult to find in these areas. Even when tenants are found, in practice this often involves them living rent-free, and only paying the utility bills for the property in question, Vähi goes on.
“Whilst we don’t have any official statistics, regarding the situation with those workers in rural areas, it is becoming clear that often the family breadwinner moves to Finland first, with the rest of the family following behind. Very often there’s a tendency that such people have no plans to come back in the immediate future if at all, and apartments will remain standing empty” Vähi explained.
Regional newspaper Põhjarannik, from the northeastern region of Estonia, concurred with this view, according to the article. It stated that empty flats were not the sole problem facing residents. For example in the town of Kohtla-Järve, residential houses throughout the town together require upkeep costs of around 7 200 Euros per year. Furthermore in the north-eastern town of Kiviõli, houses have been demolished solely to reduce the housing stock, albeit artificially, according to the article.
Vähi emphasised that these large numbers of vacant properties have been the source of social problems, which need to be resolved. He drew comparisons with the US city of Detroit, which saw a similar decline in population in the second half of the last century, the main cause being unemployment.
The original article can be found here, and Risto Vähi’s interview with Vikkeraadio is available here (both in Estonian).
At a recent round table meeting of the EKFL (Eesti Kinnisvarafirmade Liidu), an association of Estonian real estate agents, construction companies, developers and other related interests, on 26 October, the question of issues related to tax relief for rental income was raised. The meeting found that, in order to increase transparency and competition in the rental market, measures concerning such tax relief would be necessary.
“Today’s rental market happens to be rather opaque, with activities largely being directed by business considerations from private individual to private individual” said EKFL board member and regular contributor to Tallinn Property Tõnu Toompark.
“This opacity means that rental agreements tend to be either weak or entirely missing” Tõnu goes on, “with uncertainty for both tenant and landlord, and, to be frank, unfair maneuvering regarding taxes”.
As far as taxation goes, there is a grey area in the rental sector which leads to a significant competitive advantage to those landlords who are not paying taxes. The EKFL proposes eliminating this advantage and giving rental housing tax-exempt status, for example for a 10 year period.
“Income tax exemption will reverse the advantage given to the unfair competitive advantage that exists” Tõnu continues. “It will encourage those landlords who want to enter into sound and correct lease agreements and the honest moving of money through bank accounts” Tõnu explains.
Tax incentives can lead to rental offers on new apartments, thus expanding the sector. Currently around 15 per cent of people in Estonia rent their living space; this number can potentially grow towards a level in line with the Western European countries of around 25-35 per cent.
A wider share of the rental market will give all people a better choice of accomodation and facilitate greater mobility of labour. A bigger rental market will also help to keep prices stable and lead to various mini-booms in the rental market.
This proposal for an income tax free rental market is motivated by the situation this autumn, where the supply of rental accomodation is standing at a level of around 30-40 per cent less than this time year ago. This low rate of offers has led to a price ceiling and a certain amount of difficulty in finding accomodation. The EKFL believes that the Estonian economy and real estate market, which the rental market is an integral part of, will be greatly improved when a reasonable level of stability can be forecast.
The EKFL is a network of real estate mediation, development, management and consultants. The EKFL round table is a group of active members who meet on a monthly basis as an effective think tank.
The original press release (in Estonian) can be viewed here.
Posted by andrew, on October 24th, 2011
Tags: economic recovery, estonia property, Estonian economy, estonian property statistics, Estonian recovery, house prices, landscape, property news, property prices in Estonia, residential property, statistics, tallinn property, Tallinn Real Estate. Summer 2011 apparently experienced a low volume of real estate transactions in Estonia, according to Tõnu Toompark on his adaur blog. However, the months of August and September actually saw a rise to the highest level of the year so far, writes Tõnu. There were 3 428 apartment transactions in the third quarter of 2011.
The increased level of transactions also left its mark on average transaction price and values, which are both rising rapidly, Tõnu continues.
Whereas the number of transactions rose by 5.3 per cent and average prices by 14.1 per cent, the overall value of transactions has risen by 25 per cent.
That being said, given that the global economy has not yet found a solution to its continuing risks, the resulting uncertainty means that it unwise to forget about the potential risks involved.
One upside of the current situation, Tõnu writes, is that caution is held in much higher esteem than would have been the case in the past, despite the steady improvements in the market; noone is suggesting that real estate is a risk-free investment which cannot experience a subsequent fall in prices over time, something that was apparently lost on the market during the boom years of 2005-2007.
As a comparison, the number of deals peaked twice during the boom years, at around 8 500 in the fourth quarter of 2005 and again at slightly less than that a year later, when overall value of transactions stood at its highest level of a little over 500 million Euros; the low point (first quarter of 2009) saw around 2 000 deals and a total value of less than 100 million Euros.
Average prices peaked at in the second quarter of 2007 at around 1 200 Euros per square metre, reaching a low of approximately half that (600 Euros per square metre) in the third quarter of 2009. The average price per square metre currently stands at around 700 Euros per square metre.
The full article (in Estonian) along with detailed graphs depicting overall value of apartment deals, number of transactions and average price per square metre going back to 2004 can be found here.
We have just been putting the finishing touches to a fresh copy of our quarterly review of the Tallinn property market and the review.
Our latest Tallinn Property and Rental Market Quarterly Review covers all developments in the third quarter of 2011, and as always the review contains a brief look at the Tallinn residential market:
- situation regarding mortgage loans, consumer security
- information on average asking and transactional prices
- current state of the central Tallinn rental market
- invaluable sample transactions
- advice on rental business considerations
Get the Tallinn Property Market Review 2011 Q3
We would also very much like to hear your views re the property market. Or if you have any suggestions regarding topics. Please do not hesitate to write or tweet us, or leave us a comment below or on our Tallinn Property Facebook page.
Posted by andrew, on October 16th, 2011
Tags: economic recovery, estonia property, estonian property statistics, Estonian recovery, house prices, Property in Pärnu, Property in Tartu, property news, property prices in Estonia, residential property, tallinn property, Tallinn Real Estate. Today’s residential market seens to be relatively calm, with sudden changes not taking place, writes Tõnu Toompark on his adaur blog. However, developments in the city centre of Tallinn, particularly in the high end of the market are certainly a contributory factor to why Tallinn’s apartment transactions have increased by 18 per cent over the last year, he writes.
It is hoped that large price increases remain exceptional, because otherwise prices would rapidly rise to a level which would put them beyond customers’ reach, Tõnu writes.
The third quarter of 2011 saw the number of apartment transactions progress, as had already been the case in the previous quarters and indeed previous year, Tõnu points out.
Despite setbacks in the number of deals at the beginning of the year and in the summer, the third quarter saw some 3 429 apartment transactions, says Tõnu.
Thus it is possible to say that the residential apartment market is already sufficiently active, which means in turn that waiting for further increases in the number of transactions could prove to be in vain.
The number of transactions may temporarily grow for example as the result of major construction developments; however in the long term a higher level of transactions will not be sustainable, Tõnu argues.
As a comparison, the number of apartment transactions which took place in the third quarter of 2011 in Tallinn stood at 1 476, in Tartu, Estonia’s second city, the figure was 333 whilst for the third largest city, Pärnu, 139 transactions were carried out.
In total in Estonia the number of apartment transactions grew by 5 per cent over the year. However the prevailing uncertainty in the economy doesn’t give any reason for believing the number of transactions should grow. At the same time it is not so great as to cause the number of transactions to dry up altogether. Rather there has been a temporary downturn in the number of transactions, but this shouldn’t be a basis for our long term prognosis, Tõnu writes.
In the whole of Estonia the number of transactions increased most of all in Tallinn and Tartu, where the growth was four per cent and twelve per cent respectively. In Pärnu the number of transactions in the third quarter of 2011 stood at the same level as was the case a year ago.
Transaction prices are increasing slowly but steadily despite what the pessimists are saying, the average price per square metre in the third quarter of 2011 stood at 723 Euros per square metre.
Transaction prices, i.e. real estate values, are at a level which have been favourable both in terms of property asking prices, and earnings. It is clear that unemployment is high and real wages not rising, which leads to the problem of real estate purchasing using loan finance. Thus a lot of would-be real estate bargain hunters have missed their moment, Tõnu points out.
The average price per square metre for apartments in Tallinn stood at 1 070 Euros in Tallinn, 835 Euros in Tartu and 756 Euros in Pärnu, in the third quarter of 2011. Price increases in apartments seems sustainable. Apartment sale prices compared with the same quarter last year have seen positive increases for five quarters in a row, Tõnu explains.
Apartment price rises are not a primary cause for celebration during the exit from an economic crisis, but the fact that prices are so beaten down during a downturn, whereas relying on the wisdom of hindsight today, means that the only way is up anway, Tõnu says.
Fortunately price rises are not so rapid as to hinder demand. This is confirmed by the developments in the number of housing transactions. Apartment transaction prices have risen in Tallinn for six quarters in a row. Compared with the same period a year ago as we pointed out in the introduction, this rise stands at 18 per cent as of the third quarter of 2011. In Tartu the apartment transaction prices have also risen for six quarters in a row, but the increase as of the third quarter of 2011 is only three per cent. In Pärnu the transaction prices have risen three quarters in a row with a two per cent increase, says Tõnu.
Peak prices in all three cities were reached in the first and second quarters of 2007. But with more than a year of continuous price rises, the gap between that peak and current prices is getting smaller, Tõnu points out.
This runs counter to the claims of those pessimists who say that 2007 prices will never again be attained, says Tõnu. The real issue is what the real value of money today is compared with 2007 and this newly-achieved peak.
The average transaction price of apartments in Estonia today is 60 per cent of that of the former peak, and this would require a price rise of 66 per cent to reach that peak again, Tõnu writes.
Tallin’s price level stands at 65 per cent of the earlier peak, which would in turn require a price rise of 50 per cent to regain the earlier peak. For Tartu the figure is even higher at 70 per cent of the peak levels. This would need a price increase of a little more than 50 per cent to be reattained.
Summary
The big risk in today’s market is too high a price rise. Rapidly rising prices make affordability of housing difficult and thus reduce market liquidity, says Tõnu.
Market opportunities are at a relatively low level of finance (i.e. the turnover of housing loans is low) despite an increase in the volume of transactions, and therefore price rises are remaining relatively stable. Behind this lack of loan rise is in particular the demand for loans, which remains depressed at a time of economic uncertainty and stagnant real wages.
Thus we can expect that, barring anything catastrophic happening in the real estate market, the developments in the housing market will continue along the same lines, Tõnu explains. Transaction volume is likely to remain at the current level, since the potential for increase is scarce.
Apartment prices could slowly but steadily increase. It seems certain that the 18 per cent rise of the last quarter was too rapid, however. But a growing market could help to bolster the turnover of housing loans and thus in turn improve that market.
The original article (in Estonian) is available here, together with useful diagramatic information.
Posted by andrew, on September 23rd, 2011
Tags: economic recovery, Economy, Estonia, estonia property, Estonian Banks, Estonian economy, landscape, property news, property prices in Estonia, residential property. The proportion of property owners in Estonia seems to be declining somewhat, despite a strong desire in Estonia to be a property owner, according to a report in Estonian business newspaper Äripaev. The article, by Silvia Kruusmaa, goes on to say that this may actually have a positive dimension, due to its impact on both the rental and labour markets.
During the peak years of 2001-2005, the percentage of householders who were home owners was calculated at 90 per cent; however this dropped by some three per cent up to 2009, according to the article. Nonetheless, in world terms the proportion of homeowners is still high, writes Silvia.
Whilst Estonians clearly prefer to be owners than renters, a large proportion of home ownership can be bad for an economy, she says.
The European countries where the strongest impact on the real estate market has been felt are those where high levels of ownership are to be found, including Estonia, Latvia and Lithuania, writes Silvia.
Meanwhile, a high proportion of homeowners are dependent on the real estate sector for their jobs, and countries with a fast growing rate of ownership also tend to have fast growing rates of unemployment, Silvia goes on.
Furthermore, Silvia writes, unemployed homeowners are effectively tied to the biggest investment of their life, ie. real estate, and thus have less job mobility.
According to Swedbank financial affairs private information manager Piret Suitsu, to ensure an active rental market and the provision of different living places, it is necessary to have a more mobile labour market, and at the same time enable people to have a greater satisfaction with their living place.
“It is unfortunately the case today that high rents mean that job offers in another location are not viable as the living costs will take up too much of a bite in the household budget”, Piret explains.
“The housing loan volume acquired during the boom years is high, but recipients have become the owners of ‘golden handcuffs’, which do not favour mobility” she goes on.
Real estate expert Tõnu Toompark states his surprise in the article that the volume of owners during the real estate boom did not grow hugely.
According to Tõnu the real estate and economic crisis had an effect on the numbers of owners in the sense that volumes of rental properties and tenants could be improved.
Meanwhile Real Estate brokers’ Arco Vara CEO Lembit Tampere claims in the article that such a high level of home ownership is not realistic in Estonia. “Clearly there has to be a rise in proportion of rental apartments, and the reason for this is to a certain extent our artificially high level of home ownership, going back to 1991 [and the restoration of independence]“, he says.
The full Äripaev article (in Estonian) can be read here.
Posted by andrew, on August 31st, 2011
Tags: buying, energy saving, Estonia, estonia property, estonian property statistics, heating costs, house prices, property investment, property news, residential property, statistics, Tallinn Real Estate. When buying a new home, it seems that the biggest cost is likely to be the actual purchase price according to property developer Allan Kool, in an article published on Tõnu Toompark’s adaur blog. However, it gradually dawns on home owners that there are other costs associated with home buying which are essential; the most significant of these is energy costs, he goes on.
This article will attempt to make a comparison of apartments with different energy-classes. The two apartments in question are a 2006-built gas central-heated D class terraced apartment with a 2011-built A class apartment, which is being developed by Mr. Kool. In addition a typical family dwelling built in the 1960s, using coal as a heating medium will also be compared (the EU energy performace rating scale runs A-G, where A is the most efficient level and G the least efficient).
With a total area of 133 square metres, the 2006 built energy efficiency D-rated apartment experienced a total heating bill for 2010 of 2 150 Euros, or 180 Euros per month.
The 1960s-built house was classified with an energy efficiency F rating, and at 144 square metres in area cost 2 365 Euros per year, or 200 Euros per month.
By contrast the 2011-built apartment, located at Vuti Street 36/38 in the Kristiine region of Tallinn, the smallest of the three in the comparison at 125 square metres and with an energy rating level A (i.e. the most efficient) had a far lower figure for its estimated heating costs for 2011, at just 800 Euros (i.e. a little under 67 Euros per month).
Thus it can be said that the more efficiently-rated flats actually have heating costs that are over three times cheaper than a less well-rated apartment!
In general, Mr. Kool argues, energy price forecasts are somewhat tentative. He cites the claims of noted Estonian geologist Anto Raukas that energy prices in the future might be as much as three times as high as today. As a result, attempting to protect the return on investment becomes paramount in this situation.
Nonetheless at current price levels the A-rated terraced dwelling maintains a saving of 27 000 Euros over 10 years on that basis when compared with the D-rated property. When compared with the F-rated older family home that figure is even higher, at a 32 000 Euro saving over 10 years.
In summing up, it could be said that energy is a significant issue that directly affects an individual’s income. Costs, especially heating costs, should be thought about very hard when making a purchase in the housing market. A property with a lower purchase price can prove much more expensive in the long term in comparison with that with a more efficient level of energy consumption, thus it is worth paying close attention to the energy rating when buying your home.
The full article (in Estonian) including a table comparing the three properties studied is available here.
Posted by andrew, on August 7th, 2011
Tags: economic recovery, Estonia, estonia property, Estonian economy, estonian property statistics, Estonian recovery, landscape, statistics, Tallinn Real Estate. Both built up and raw land in Estonia has seen a significant increase in the number of deals in the second quarter of 2011, according to Tõnu Toompark on his adaur blog. This is in direct contrast to apartment deals which over the same period have seen a decline in frequency.
The second quarter of 2011 saw 2710 transactions involving undeveloped land, which is almost one fifth higher than a year ago, writes Tõnu. This at the same time represented an increase in value of sales of 62 per cent. Total growth in sales of undeveloped land over the same time period came to a value of 66 million euros, Tõnu goes on.
The majority (80 per cent) of land deals have involved undeveloped land, but only 66 per cent comprised profit-yielding land, Tõnu explains.
1351 deals involving developed land were concluded in the second quarter of 2011, writes Tõnu. Whilst the number of deals of this type as a whole rose by 10 per cent year-on-year, their corresponding value only rose by 2 per cent over the same period, he says.
According to Tõnu, the total value of sales of built-on land came to 109 million euros.
Developed land transactions made up the majority (60 per cent) of all residential deals, Tõnu continues.
Both developed and undeveloped land transactions are still a long way off the peak levels in 2006, when the total number of undeveloped land transactions stood at over 4000 in the second quarter of the year, to a value of over 300 million Euros, and developed land transactions stood at around 3000 during the same period, naturally with a higher total value (peaking at just under 450 million Euros in the final quarter of 2006).
See here for the full report (in Estonian) plus graphs illustrating the changes in value and total number of developed and undeveloped land transactions since 2004.
Posted by andrew, on August 1st, 2011
Tags: buy-to-let, buying, Estonia, estonia property, Estonian Banks, estonian property statistics, property investment, property news, tallinn, tallinn property, Tallinn Real Estate. We just thought we’d like to blow our own trumpet for once!
A recent article by Christopher Middleton in UK quality daily newspaper the Daily Telegraph about the 20 best locations for investing in overseas property, amongst places as far afield as Albania and the Shetlands, has cited Goodson and Red as first port of call for investing in Tallinn!
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