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How Is The Real Estate Market Long Term In Estonia?
Over the long term perspective, real estate prices are booming in Estonia. Membered the EU in 2004, the country start to become realized by the investors. Estonia became an IT and start-up country. Back then, Estonia was one of the East European or Baltic countries that was considered a poor small country. Currently, we are talking about developed country that has 33k GDP per capita in 2023. So, overall things are going good a macro scale. I believe that journey didn’t end and there is still way to go. You can check the projection of GDP per capita in Estonia.
I would like to share with you current real estate index as well. You can see a clear up trend over the long run. When investing in real estate, you should invest for the long term anyways, right? Not always but many people have this approach of course.
What Is The Current Market Status?
Several years ago I bought a flat in Estonia. During that time I was constantly checking the market. I want to share my knowledge about who is going to buy a flat or who just simply thinks that is it a good time to buy real estate in Estonia, especially in Tallinn. I’m not an expert on this topic but I highly recommend to consider my tips.
First of all, the global real estate market is sinking, and also Estonia is part of the Eurozone. Therefore due to interest rate hikes as central bank policy flat prices are declining for almost nine months already. You can see clearly the drop in the image below.
In 2022 market increased by % the 22 average. Due to high inflation, this number was actually a negative real gain or neutral. This year when we think about inflation as well real return is brutally bad. I’m not going into deep math here. I think it’s clear to understand the current situation. FED will continue to rate hike end of this year. So we can assume ECB will do the same almost. Therefore real estate market is going to bleed at least until the end of this year.
What’s Going to Be Next?
I think this year and next year won’t be the best for the real estate market in Estonia. If prices protect you from inflation you should feel as lucky. Do you think that real estate prices will go up when they stopped? To be honest, even when they started to decrease rates, then fundamental questions come up in my head. Why do people start to buy flats if they already know that they can burrow cheaper in the future?
So my speculation is that inflation will be lower in the coming years, and the market won’t go high more than the inflation rate. If you would buy a flat last year most probably now your property is around 5% above. However, inflation is roughly 11% if you believe the formal sources. If someone pays %5-6 yearly mortgage debt now, it is still not a bad idea if you consider renting instead.
Rental property prices are increasing as well. Although its pace decreased. I try to focus on real estate as an investment purpose in this article. If you own it to get rid of rent then it is still a wise idea. If you want to buy a flat in Tallinn, I would certainly wait for a while more.
Are We Going to Have Real Estate Market Crush?
Nobody can answer that exactly. I think the real estate market won’t crush like in 2008. Fundamentals are totally different. Current problems are related to inflation. If a little bit of crush happens globally then central banks will act accordingly. Real estate market cant be crushed for a long period because of the banking system. We have to remember that the collateral product is actually your property and that property price should move up always in the long term to keep system healthy.
Sources:
https://www.statista.com/statistics/377170/gross-domestic-product-gdp-per-capita-in-estonia/
https://www.kv.ee/kv-index?start=2015-06-28&end=2023-06-27