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Last Updated: Jun 24, 2016




After experiencing strong property price rises in the past three years, Estonia’s property boom seems to have reached its end, with house price rises decelerating sharply.

During the year to April 2016, the average price of apartments in Tallinn, Estonia’s capital, increased 1.92% (2.75% inflation-adjusted) to €1,590 per square meter (sq. m), a sharp slowdown from an annual rise of 7.44% in the same period last year, according to Ober Haus Real Estate Advisors. During the latest quarter, apartment prices in Tallinn rose by 2.85% (1.46% inflation-adjusted).

This is in line with figures released by Statistics Estonia, which shows that the average purchase price of dwellings in the whole country rose by a meager 0.81% (1.22% inflation-adjusted) in the first quarter of 2016 from a year earlier, to €1,041 per sq. m. This was far from the y-o-y rise of 11.1% (12.1% inflation-adjusted) in Q1 2015 and the lowest annual price increase since Q2 2010.

However, movements of house prices in each of the country’s major cities during the year to end-Q1 2016 vary considerably:
  • In Tallinn, Estonia’s capital, the average price of dwellings purchased increased by just 0.73% to €1,555 per sq. m., a sharp slowdown from a y-o-y rise of 8.61% a year ago.
  • In Tartu City, the second largest city and the intellectual capital of Estonia, the average price of dwellings purchased rose by a meager 1.04% to €1,218 per sq. m., from an annual rise of 5.61% a year earlier.
  • In Parnu City, the country’s summer capital, located in the southwestern, the average price of dwellings purchased rose by 12.06% to €935 per sq. m.
  • In Estonia excluding Tallinn, the average purchase price of dwellings dropped 2.66% to €615 per sq. m.

After Estonia’s amazing 36% annual house price rises from 2004 to 2006, prices of dwellings started to fall in 2007, partly due to the global financial meltdown.
  • In 2007, the average price of dwellings dropped by 1.5% (-9.7% inflation-adjusted)
  • In 2008, the average price of dwellings plunged by 18.3% (-24.5% inflation-adjusted)

  • In 2009, house prices plummeted by 30.5% (-29.1% inflation-adjusted)

After these 3 horrendous years, a house price recovery began in the second half of 2010, with the average price of dwellings rising modestly by 4.1% (-1% inflation-adjusted). In 2011, nationwide house prices soared by 12.3% (7.9% inflation-adjusted). In 2013, house prices surged 14.5% (12.9% inflation-adjusted), after rising by 5.4% (1.6% inflation-adjusted) in 2012. Property prices continued to rise, with house prices rising by 8.46% (8.95% inflation-adjusted) in 2014 and 8.07% (8.68% inflation-adjusted) in 2015.

Estonia house pricesEstonia’s housing market is expected to slow further this year, amidst modest economic growth, according to local property experts.

Estonia’s economy grew by a meager 1.1% last year, after real GDP growth rates of 2.1% in 2014, 1.6% in 2013, 4.7% in 2012, and 8.3% in 2011, mainly due to sharp slowdown in the electronics sector and shale oil sector, and a decline in demand from neighboring Russia. Estonia’s economy is projected to expand by a modest 2.2% this year and by another 2.8% in 2017, according to the International Monetary Fund (IMF).

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: Sep 27, 2013



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: Sep 26, 2013



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: Jun 24, 2016


Estonia: Modest economic growth, falling unemployment

Estonia 5 to 6 bedroom housesEstonia is a small country of 1.32 million people, with a GDP per capita of €15,580 in 2015, 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.

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. As the country fell deeper into recession, the government cut spending by about 7.8% in 2009. It kept its income tax rates low, but hiked VAT by 2% to 20% in July 2009. By 2010 Estonian unemployment had risen to 16.7%.

The economy recovered in 2010 with GDP growth of 2.5% and a fiscal budget surplus. In January 2011, Estonia was the first country since the financial crisis to join the Eurozone.

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 the high reference base of government sector investments, weakness of exports and rising inflation. Estonia’s economy grew by 2.9% in 2014 and by just 1.1% in 2015, mainly due to sharp slowdown in the electronics sector and shale oil sector, and a decline in demand from neighboring Russia, based on IMF figures.

Estonia gdp inflationEstonia’s economy is projected to expand by a modest 2.2% this year and by another 2.8% in 2017, according to the IMF. On the other hand, the European Commission gives more conservative projections, expecting growth rates of 1.9% in 2016 and 2.4% in 2017.

Unemployment was down to 6.8% in 2015, from 7% in 2014 and 8.6% in 2015. During the first quarter of 2016, nationwide unemployment rate stood at 6.5%, slightly up from 6.4% in the previous quarter and 6.3% in a year earlier, according to Statistics Estonia. The jobless rate is expected at around 6.5% this year.

In 2015, the average monthly gross wages and salaries rose by 6% to €1,065 from a year earlier, according to Statistics Estonia. In Q1 2016, the average monthly gross wages and salaries increased 8.1% y-o-y to €1,091 while the average hourly gross wages and salaries rose by 7.7% y-o-y to €6.86. Yet inflation remained low at 0.07% in 2015, from 0.5% in 2014, 3.2% in 2013, 4.2% in 2012, and 5.1% in 2011, according to the IMF.

In April 2016, consumer prices fell by 0.1% from the previous month and by 0.8% from the same period last year, according to the Bank of Estonia.

In 2015, Estonia registered a government surplus of about €84.1 million or 0.4% of GDP, from a surplus of €121 million in 2014, and deficits of €40 million in 2013 and €39 million in 2012, according to Statistics Estonia.

Estonia’s national debt declined to €1.99 billion in 2015, from €2.07 billion in a year ago, according to Statistics Estonia. The country had the smallest national debt level across the European Union, at just 9.7% of GDP last year.







  • 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.

Baltics Real Estate Market Overview 2016 - Colliers InternationalPoland Residential Market Q2 2016 REASPoland Residential Market Q3 2016 REAS
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