TallinnHome Market update for 2010

2010 will be an interesting year for many investors and homeowners in Tallinn. The last two and a half years have been plagued with a fast falling property market. Rental and sale prices have dropped considerably and we have all been holding our breath and waiting to reach the bottom. It is of course difficult to say for sure, but it appears that the bottom may now be in sight, some experts have speculated that the bottom has already passed and few vendors have even seen a small rise in certain areas.

I am not going to fill this local update with false hope or imply an imminent boom, but a realistic observation of the local property market, combined with relative current economic advances would point to a optimistic view for 2010.

Ober-Haus Real Estate Annual Market Report  for 2010 summarises well the general outlook for 2010:

Economy

GDP plummeted -14% in 2009, after dropping - 3% in 2008, as a lending boom turned to bust after eight years (2000 - 2007) averaging 7% GDP growth per year. The good news for 2010 is that the economy is now growing, with 2.6% GDP growth quarter-on-quarter in Q4 of 2009, and most analysts projecting 2% annual GDP growth in 2010.
Inflation, as measured by the Consumer Price Index, was flat for 2009, coming in at just - 0.1%, easing fears of any serious price deflationary spiral. Projections for 2010 are also flat, at 0.5% inflation for the year.
Unemployment hit 13% by the end of 2009, up from just 4.5% at the start of that year. While GDP is now growing, analysts forecast unemployment will continue to climb as high as 15% before the recovery leads to more job creation later in 2010.
Estonia aims to be the third new EU member to adopt the euro - after Slovenia and Slovakia. The European Commission will decide
in Spring 2010 if Estonia meets the criteria to adopt the single currency starting January 2011. Most analysis expect a positive decision, with the only criteria too close to call is whether Estonia will meet the Maastricht criteria of a government deficit less than 3% of GDP.

Prices

Prices in Tallinn hit their peak in April 2007 at €1,614 per sqm average, and have fallen 53% since to reach an average of €753 per sqm.
In 2009, the total number of transactions with apartments in Tallinn declined 28% and the sales volume declined 54%. This year’s fourth quarter price decrease stopped and number of transactions began to increase. There were also several block deals with lower price than average. Due to individuals and companies bankruptcies, more properties are thrown into the market, but also we can see some upward price pressure related apartments in good locations and in good shape. During the next few months some financially strong developers will start with few new objects, because construction prices have fallen substantially and in some locations demand exceeds supply in certain price level. A considerable number of transactions are made without a bank loan.
In the city centre and Old Town in the Q4 of 2009 financial volume fell 14%, but number of transactions rose 10% in y-oy comparison. Comparing with Q3 2009, number of transactions rose 25% and statistical price increase was 7%. Similarly to Q3, we can see growing number of foreigners purchasing real estate, but they only have interest to unique objects. The number of properties in the market and offer prices have stabilised. Today there are 50% of the total offers are with price over €1,600 per sqm, but only very few transactions are done over mentioned level. Most transactions are done in price range of €650 to €1,300 per sqm. Major renovations needed apartments price offers are starting from €500 per sqm, apartments in good shape from €830 per sqm. In newly constructed or renovated
buildings real sales are done from €1,000 to €1,600 per sqm.
In the Old Town, prices starting from €1,000 per sqm for major renovations needed apartments and from €1,500 per sqm for the renovated apartments. In the suburbs most transactions are done with one or two room cheaper and major and modernisation needed or with very good condition apartments. The decisive factor for customers is a technical condition of the building, housing union´s activity and the debt burden. In not so valued areas and major renovations needed price offers start from €320 - €450 per sqm.
Most of the sales are done in price range €580 - €830 per sqm. No big development projects were started in 2009, while many
under construction were frozen.

Rents

Average residential rents fell 35% in 2009. Expensive apartments were affected the most. As the offer exceeds the demand, the market of rental apartments became more tenant friendly and the owners are ready for price discounts as well as rebates towards the life of the lease. The unstable situation on the labour market makes long-term agreements less desirable than earlier. Potential tenants pay more attention to the heating costs. The most in-demand are fully furnished one or two room apartments in the centre or near the centre of the town with the rent of €160 - €290 per month, ideally with a parking space.
Depending on the location and the condition, the rent of the fully furnished two-room apartment in the suburb is €130 - €190 per month. Usually utility payments are added. Newly signed residential leases are not subject to rent control, so rent may be agreed freely.

Image Source - Ober-Haus Real Estate Annual Market Report 2010