Buying real estate in Estonia?

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Is it a good time to buy a property in Estonia in 2024?

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Everything you need to know is included in our Estonia Property Pack

Are you thinking of investing in property in Estonia? Are you thinking about whether you should buy now or postpone until next year?

People have differing viewpoints when it comes to market timing. Your Estonian friend might tell you that now is the ideal time to buy property, while your colleagues in Tallinn may think that prices will soon decline.

At Investropa, when we create articles or update our pack of documents related to the real estate market in Estonia, we believe that facts and data are more important than opinions and rumors, so we prioritize them.

We have thoroughly examined all the official reports and statistics available on government websites. Now, we have a comprehensive database of reliable information and we can help you determining whether it is currently advantageous to purchase real estate in Estonia.

Enjoy the article!

How is the property market in Estonia now?

Estonia remains, today, a very stable country


Stability should be the first thing you look at when you want to invest in real estate because it safeguards against economic downturns and minimizes investment volatility. It is an information you need as a foreigner looking to buy real estate in Estonia.

You most likely already know that Estonia is widely known for its remarkable stability. The last Fragile State Index reported for this country is 37.7, which is an impressive number.

Estonia has a strong economy, low public debt, and a well-developed social welfare system, all of which help to ensure a stable and prosperous country. Additionally, Estonia has a strong commitment to democracy and a transparent government, which have helped to create a safe and secure environment for its citizens.

Stability check done. Now, it's time to review the economic forecast.

Estonia is poised for strong growth


Before investing in Real Estate, look at the performance of the country's economy.

According to the IMF, Estonia will, in 2023, grow by -1.2%, which is underwhelming. As for 2024, the consensus estimate is 3.2%.

Private spending is expected to be low, while investment is predicted to slowly recover despite tighter financial conditions. Exports are likely to stay weak due to sluggish growth in the economies of our trading partners.

However, the negative growth rates won't be a long-term trend since Estonia's economy is expected to increase by 10.2% during the next 5 years, resulting in an average GDP growth rate of 2%.

The expected sustainable growth rate in Estonia is a good thing for someone who wants to invest in real estate because it indicates that the market is likely to remain strong and stable over time, providing a good return on investment. Additionally, the growth rate suggests that the value of real estate investments in Estonia is likely to increase over time.

However, there are other indicators to watch.Estonia gdp growth

Estonian business owners show concern regarding the economy


The GDP growth is avalid measure, but may not entirely capture business community sentiments in the property market. Fortunately, in Estonia there is a standardized metric that is regularly published. We're lucky because this isn't true for every country.

The Business Consumer Index (BCI) is a measurement that gauges the confidence of business leaders in the current and future economic conditions. It's determined through surveys and assessments.

According to the Estonian Institute of Economic Research's data, the latest Business Confidence Index value is -14 for Estonia. It's a score that can be qualified as "concerning".

A year ago, business operators were not very confident either. The BCI score was at 3.

A lack of confidence among local businesses in Estonia can impact individuals looking to purchase property. It may result in a subdued property market, characterized by decreased investment and slower property price appreciation. Buyers might encounter limited choices in the market and potentially face difficulties in finding motivated sellers or securing favorable financing options.

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Estonia is issuing less building permits


If you're thinking about buying property in a country, it's worth considering the recent number of permits granted for property development. More building permits being delivered signifies a heightened interest and activity in the property market.

Unfortunately, the number of building permits issued is decreasing in Estonia.

Throughout the past year, according to Statistics Estonia, the number of building permits granted by Estonian local institutions fell by 8%, from 8,773 to 8,075 units.

This is definitely a red flag. Let's consider more data to get a better understanding.

One last thing to note though. Less building permits means less real estate supply. If it's the case, then property prices will increase in Estonia in 2024.

Opportunities among stagnating property prices in Estonia


Estonia's home prices have increased by 68.6% in 5 years according to eurostat.

It means that if you had bought a wooden cottage in Tallinn for $550,000 five years ago, then it would now be worth around $927,000.

Property prices experienced a surge in the past, but they have recently reached a state of stagnation. The question remains: will this period of stagnation persist?

How to interpret that? Does it make it a good time to buy a property in Estonia? While some may view it as a potential opportunity to invest at stable prices, others may prefer to wait for further market developments before making a decision.

You can find a more detailed analysis of the real estate prices in our property pack for Estonia.Estonia housing prices real estate

Everything you need to know is included in our Estonia Property Pack

Estonia's population is getting richer


When evaluating real estate prospects, it's crucial to consider population growth and GDP per capita because:

  • a growing population means more people needing homes
  • a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)

In Estonia, the average GDP per capita has changed by 8.1% over the last 5 years. It's a solid number.

This means that, if you purchase a historical townhouse in Tallinn and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.

If you're considering purchasing and renting it out, this trend is a good thing. Then, there might be an increase in rental demand in Estonian cities like Tallinn, Tartu, or Pärnu in 2024.

Rental yields are not crazy in Estonia


Rental yield is a common measure in real estate investing.

It informs you about the rental income percentage you can anticipate from the property, helping you evaluate its investment worthiness.

According to Numbeo, rental properties in Estonia offer gross rental yields ranging from 2.2% and 4.9%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Estonia.

It means that the income potential from a real estate investment is relatively moderate.

As mentioned previously, there is a possibility of housing prices increasing due to a limited supply of homes. Also, the potential increase in wealthy tenants is not significant. Consequently, rental yields are likely to remain stable or possibly experience a slight decline in Estonia in 2024.

Estonia rental yields

Everything you need to know is included in our Estonia Property Pack

In Estonia, anticipate strong inflation


Simply put, inflation is the increase in prices over time.

It's when your favorite cup of kohvi costs 2 euros instead of 1.50 euros a couple of years ago.

If you're planning to invest in a property, high inflation can offer several benefits:

  • Property values often increase over time, leading to potential capital appreciation.
  • Inflation can lead to higher rental rates, thereby increasing the cash flow from the property.
  • Inflation decreases the real value of debt, making mortgage payments more affordable.
  • Real estate can serve as a hedge against inflation, safeguarding the value of the investment.
  • Diversifying into real estate provides stability during periods of inflation.

As per the IMF's forecasts, over the next 5 years, Estonia will have an inflation rate of 18.0%, which gives us an average yearly increase of 3.6%.

This data means that Estonia is anticipated to encounter inflation, making it a potentially opportune time to buy property. If the property's value increases over time, you can sell it at a higher price and make a profit.

Is it a good time to buy real estate in Estonia then?

Time to conclude !

While there are some favorable signals, 2024 may not be the optimal time for property investment in Estonia due to a combination of factors. Despite the country's stability, the concerns arising from negative and neutral signals warrant careful consideration before making investment decisions in the Estonian property market.

Estonia's stable environment provides a foundation for potential investments. However, the anticipation of strong growth and an increase in population wealth might not fully offset the potential challenges associated with the property market's current dynamics.

Strong inflation, though a favorable signal, can impact the purchasing power of individuals, potentially leading to adjustments in property prices and rental income expectations. As property prices and living costs rise, it's important to weigh the potential returns against the inflationary pressures.

The neutral signals, including stagnating property prices and average rental yields, indicate a market that may not be offering significant short-term gains for property investors. Coupled with the concern among Estonian business owners about the economy, the overall investment landscape may lack the robustness that investors typically seek.

Moreover, the reduction in building permits raises questions about the future supply of properties. Fewer building permits could limit the availability of new properties and potentially impact property values in the long term. This factor, combined with the other signals, suggests that there might be more favorable times to consider property investment in Estonia than 2024.

We genuinely hope this article has provided you with valuable insights and information.. If you need to know more, you can check our our pack of documents related to the real estate market in Estonia.

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.

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