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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
Positive
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 36.5, which is an impressive number.
Estonia's stability is largely attributed to its robust digital infrastructure and e-governance system, which enhance transparency, efficiency, and citizen engagement in governmental processes. Additionally, its strong commitment to NATO and EU membership provides security assurances and economic integration, fostering a stable geopolitical and economic environment.
Stability check done. Now, it's time to review the economic forecast.
Estonia will grow at a moderate pace
Positive
Before investing in Real Estate, look at the performance of the country's economy.
According to the IMF, Estonia will, in 2024, grow by -0.5%, which is underwhelming. For 2025, the consensus estimate is 2.2%.
However, the negative growth rates are not here to stay since Estonia's economy is expected to increase by 6.7% during the next 5 years, resulting in an average GDP growth rate of 1.3%.
A moderate growth rate in Estonia suggests a stable and sustainable economic environment, which can lead to steady property value appreciation over time. This stability reduces the risk of market volatility, making it a safer investment for property buyers.
However, there are other indicators to watch.
Estonian business owners don't have faith in the economy
Negative
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 -13 for Estonia. It's a score that can be qualified as "concerning".
This is not new, business operators were not confident 12 months ago either. The BCI score, back then, was at -19.
The negative Business Confidence Index in Estonia can significantly affect individuals seeking to purchase property. This lack of confidence may lead to a sluggish property market, marked by reduced investment and stagnant or declining property prices. Buyers might find fewer options available and could struggle to locate motivated sellers or obtain favorable financing terms.
Estonia is issuing less building permits
Negative
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 2025.
Opportunities among stagnating property prices in Estonia
Neutral
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.
Everything you need to know is included in our Estonia Property Pack
Estonia's population is growing and getting richer
Positive
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. Furthermore, the Estonian population is growing (+3% in 5 years).
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 2025.
Rental yields are not crazy in Estonia
Neutral
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 2025.
Everything you need to know is included in our Estonia Property Pack
In Estonia, inflation is expected to be minimal
Neutral
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 1.0%, which gives us an average yearly increase of 0.2%.
This data means that Estonia will likely experience almost no inflation. If you buy a property now, you may experience lower appreciation potential and reduced returns on investment.
Is it a good time to buy real estate in Estonia then?
Time to conclude !
Estonia is known for its stability, which is a great foundation for any investment, including property. However, if you're considering buying property in 2025, you might want to think twice. The country's economy is projected to grow by 6.7% over the next five years, which translates to an average GDP growth rate of 1.3%. While this moderate growth rate suggests a stable economic environment, it also means that property values might not skyrocket, leading to only steady appreciation over time. This could be a bit underwhelming if you're looking for a quick return on investment.
Another factor to consider is the issuance of building permits in Estonia. The country is issuing fewer permits, which could mean a limited supply of new properties entering the market. While this might sound like a good thing for property values, it could also mean fewer opportunities for buyers to find the perfect property. With stagnating property prices, you might not see the kind of dynamic market activity that can lead to exciting investment opportunities.
On the flip side, Estonia's population is growing and becoming wealthier, which could drive demand for housing. However, this increased demand might not immediately translate into higher property values, especially if the supply remains limited due to fewer building permits. This situation could lead to a more competitive market for buyers, potentially driving up prices without a corresponding increase in property value.
Lastly, when it comes to rental properties, Estonia offers gross rental yields ranging from 2.2% to 4.9%, according to Numbeo. While these yields are decent, they might not be enticing enough for investors looking for higher returns. Additionally, with minimal inflation expected, the real value of rental income might not increase significantly over time. All these factors combined suggest that 2025 might not be the most opportune time to dive into the Estonian property market if you're seeking substantial gains.
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.
-Will real estate prices go up 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.