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Last Updated: Apr 03, 2017




Estonia has low interest rates, and moderate to good rental yields.  Little wonder that despite weak economic growth, during 2016 the average price of apartments in Tallinn increased 12% (9.54% inflation-adjusted) to €1,744 per square metre (sq. m), according to OberHaus.  This was a sharp increase from the price rises of 3.87% the previous year. During the last quarter of 2016, apartment prices in Tallinn rose by 3.2% q-o-q (3% inflation-adjusted).

This is in line with national figures released by Statistics Estonia.  The average price of Estonian dwellings rose nationally by 10.66% (9.25% inflation-adjusted) in 2016, to €1,148 per sq. m..

All of the country’s major cities experienced strong house price rises during the year 2016, according to Statistics Estonia:
  • In Tallinn, Estonia’s capital, the average price of dwellings purchased increased 8.74% to €1,692 per sq. m. in 2016, after a rising by 4% y-o-y last year.
  • In Tartu City, the second largest city and the intellectual capital of Estonia, the average price of dwellings purchased rose by 7.54% y-o-y to €1,247 per sq. m. in 2016.
  • In Parnu City, the country’s summer capital, located in the southwestern, the average price of dwellings purchased rose by 8.14% y-o-y to €999 per sq. m. in 2016, after rising by 15.89% a year earlier.
  • In Estonia excluding Tallinn, the average purchase price of dwellings rose by 9.85% to €676 per sq. m. in 2016, after an annual rise of 8.11% in 2015.


Estonia’s housing market was in continuous boom from 2000 to 2007, with house prices nationwide rising by 36% annuallyfrom 2004 to 2006.  This was due to the following factors:
  • low interest rates
  • low inflation
  • strong economic growth
  • rapid wage increases
  • huge foreign demand for property, especially from other Europeans


Demand for properties in Tallinn reached an all-time high in 2006, with foreigners attracted by the city’s potential. Tallinn accounted for more than half of all real estate transactions in Estonia. 

The average price of 2-room flats in Tallinn rose by 448.7% from 2000 to 2007, in Tartu prices rose 431.5% and in Parnu 440%. Prices of three-room flats were equally impressive, rising 412% in Tallinn, 481% in Tartu, and 471.5% in Parnu.

Meanwhile owner-occupancy rates rose strongly, up from 85% in 2002, to 96% in 2004. The rental market shrank from 12% of households (with 9% privately renting and 3% in social rents) in 2002, to just 4% in 2004.

Then came the crash.  Estonia's house price falls in 2008 were among the biggest in the world, rivaled only by Latvia.  Prices of dwellings started to fall nationwide in 2007, partly due to the global financial meltdown:
  • In 2007, house prices dropped by 1.5% (-9.7% inflation-adjusted)
  • In 2008, house prices plunged by 18.3% (-24.5% inflation-adjusted)
  • In 2009, house prices plummeted by 30.5% (-29.1% inflation-adjusted)


Estonia house pricesAfter these 3 horrendous years recovery began in the second half of 2010, with the average price of dwellings rising modestly by 4.1% (-1% inflation-adjusted).
  • In 2011, house prices soared by 12.3% (7.9% inflation-adjusted).
  • In 2012, house prices rose by 5.4% (1.6% inflation-adjusted)
  • In 2013, house prices surged 14.5% (12.9% inflation-adjusted).
  • In 2014, house prices rose by 8.46% (8.95% inflation-adjusted)
  • In 2015, house prices rose by 8.07% (8.68% inflation-adjusted).

Estonia’s housing market is expected to remain robust year, despite weak economic growth, according to local property experts.

Analysis of Estonia Residential Property Market »


RENTAL YIELDS
Last Updated: Jul 12, 2015



Rental yields have risen this past year in Tallinn, the capital of Estonia.

A 40 sq.m. apartment costs around EUR 1,800 per sq. m. (EUR 169 per sq. ft.) while a 120 sq. m. apartment costs around EUR 2,200 per sq. m. (EUR 206 per sq. ft.).

Renting costs, on average, EUR 384 for a 40 sq. m. apartment per month, whereas for a 120 sq. m. apartment (1,291 sq. ft.), monthly rents are around EUR 1,145. Average rents per sq. m. are around EUR 9.4 per month.

Gross rental yields from apartments in Tallinn are moderate, ranging from 5.3% to 6.3%. Smaller apartments tend to earn higher rental returns. A 40 sq. m. apartment has moderate to good rental yields at 6.3%, whereas a 120 sq. m. apartment earns somewhat poorer rental yields at 5.3%.

Round-trip transaction costs on residential property in Tallinn are low.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: May 03, 2017



Rental Income: Nonresident individuals are liable to pay 21% withholding tax on their gross income. No deductions and personal allowances are given. Withholding taxes are final taxes, so the non-resident has no obligation to file tax returns.

Capital Gains: Capital gains from the sale of immovable property are aggregated with other income and taxed also at 21%.

Inheritance: There are no inheritance taxes in Estonia.

Residents: Residents are taxed on their worldwide income at a flat rate of 21%.

The previously announced income tax rate reductions have been cancelled.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: May 04, 2017



Total transaction costs are between 2.57% and 5.59%. The main cost is the realtor’s fee, which varies between 2% to 4% depending on the size of the apartment. All costs are paid by the buyer.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jun 01, 2006



Estonia houses for saleEstonian rental market practice is pro-tenant.

Rents: ‘Luxury’ housing category is free from rent control. Other housing is subject to a prohibition on “excessive rents” (Law of Obligations S301). The landlord can ask for up to three months’ deposit.

Tenant Security: Contract periods can be freely agreed between landlord and tenant, but there are dangers – upon expiry of a specified term lease, the tenant may demand that the contract be extended for up to three years, and in fact the tenant can demand repeated extensions. In addition, unless care is taken, specified term contracts can default to ‘unspecified term contracts,’ in which tenant eviction is difficult.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Apr 03, 2017


Estonia: Modest economic growth, rising unemployment

Estonia 5 to 6 bedroom housesEstonia is a small country of 1.31 million people, with a GDP per capita of €16,030 in 2016, according to the International Monetary Fund(IMF). The most prosperous Baltic state, its success is attributable to bold liberalization measures adopted in the early 1990s. It was the first Former Soviet Union (FSU) state to be invited by the European Union (EU) to start negotiations in 1997, and was formally admitted into the EU in May 2004, a few months after joining NATO. Then in January 2011, the euro became the official currency of Estonia.

Estonia’s economy is projected to expand by a modest 2.5% this year and by another 2.9% in 2018, according to the International Monetary Fund (IMF).

From 2000 to 2006, Estonia’s economy expanded by an average of 8% annually, including resounding 10.4% GDP growth in 2006, and 9.5% growth in 2005. In 2007, GDP growth was 7.9%, one of the highest growth rates in the EU. Unemployment fell from 13% in 2000, to just 4.6% in 2007.

The economy contracted by 5.4% in 2008, and by a staggering 14.7% in 2009. The economy recovered in 2010 with GDP growth of 2.5% and a fiscal budget surplus. Estonia had astounding growth of 7.6% in 2011, with strong exports. Unemployment fell to 12.3%. Then in 2012, the economy expanded by a robust 5.2%, bolstered by construction and export growth.

However, the economy slowed sharply in 2013, with real GDP growth rate of just 1.6%, mainly due to weak exports and rising inflation. It grew by 2.9% in 2014 and by just 1.1% in 2015, mainly due to a sharp slowdown in the electronics sector and shale oil sector, and a decline in demand from neighboring Russia.

Estonia gdp inflationIn 2016, Estonia’s economy expanded by a very modest 1.6%.

As a result, the unemployment increased to 6.8% in 2016, from 6.2% in 2015, according to Statistics Estonia. The jobless rate is projected to increase further to 7.9% this year and to 8.7% in 2018, as reforms encourage pensioners to reenter the labor market, according to the European Commission.

In 2016, the average monthly gross wages and salaries rose 7.6% to €1,146 from a year earlier, according to Statistics Estonia. Yet inflation remained low at 0.5% in 2016, from 0.07% in 2015, 0.5% in 2014, 3.2% in 2013, 4.2% in 2012, and 5.1% in 2011, according to the IMF.

Consumer prices are projected to increase by 2.8% this year as well as in 2018, according to the European Commission.

The country has lowest national debt level in the European Union, at just 9.5% of GDP last year.  In 2016, Estonia registered a government surplus of 0.3% of GDP, according to Statistics Estonia.







  • Very low transaction costs
  • Moderate yields in Tallinn
  • Strong economic growth
  • High rental income tax
  • Slighlty pro-tenant market
RESIDENTIAL PROPERTY FACTS
Price (sq.m): €2,373 For a 120 sq. m. property, usually an apartment.
Rental Yield: 4.28% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,016 For a 120 sq. m. property.
Income Tax: 20.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 4.08% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 20.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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