Of the three ‘Baltic Tigers’ (Estonia, Latvia and Lithuania), Estonia has arguably been the most ‘tiger-like’ so far, showing electrifying growth since the country’s separation from the USSR back in 1992.
The country’s proximity to Finland and Sweden meant that there was a great deal of Foreign Direct Investment right after the little country’s independence, particularly in the area of hi-tech (did you know that Skype was actually developed in Estonia?)
Fifteen years after independence, Estonia is still at the front of the pack with an annual growth in GDP of 9.8%, second only to neighbouring Latvia. With the exception of Slovenia and the Czech Republic, Estonians have the highest standard of living from any of the developing markets covered by Propertastic!
Estonia’s government has always been very pro-business and has developed policies that are attractive for foreign investment. The same approach makes it very simple for foreigners to buy property in Estonia. The country ticks all of the right boxes for the property speculator – plenty of good mortgage products, no restrictions on foreigners’ buying property, no VAT on purchases, no Capital Gains tax.
There are a few storm clouds gathering on the horizon, however. Estonia hit the world’s headlines for all the wrong reasons at the end of April 2007 when the removal of soviet war memorial in Tallinn led to rioting in the centre of Tallinn which, in turn, led to Russia applying sanctions to the country. This has not helped the country’s image any, and it is possible that the souring of relations with Russian could lead to Russians pulling their capital out of the market, which would have some effect upon the country's previously meteoric growth.
|What more could the property investor want?|
Well, they would probably want the property prices to be a little lower than they are already as property in the capital city, Tallinn, has already been booming for several years already. In fact Estonia saw the fastest rising property prices in Europe in 2005 before neighboring Latvia showed even more incredible growth and overtook it in 2006. The result is that property prices in Riga are now ahead of those in Tallinn.
Unemployment in Tallinn is low, which means that there is plenty of local demand for good property. Tallinn’s Old Town is beautiful and a UNESCO World Heritage site, meaning that there is a good market for renting to tourists as well. Currently it is only possible to take budget flights to Estonia from London using easyJet or Estonian Air at the moment, which means that there is plenty of room for growth in the tourist market if other routes from the UK are launched at some point in the future.
There are also increasing fears that the economies of the three Baltic countries has grown too fast, too quickly and is now out of control, together with the prices of property in the region, with talk of a bubble about to burst. Latvia has been the subject of most of the economists' concerns that the country's economy is in danger of going into meltdown but, more recently, the concerns have been spreading to Estonia as well, with Standard & Poor downgrading Estonia's rating in June.
These concerns have already spread to Estonia's property markets. As is the case with many of the fast-growing markets, many off-plan developments were bought by speculators. Now that these units are finished, the speculators are finding that there are few buyers for the finished properties. The result is that, over the past few months, these speculators have been forced to sell for lower than they bought for, with some even deciding it is better to lose their deposits rather than go through with the deal. There are already signs that supply of new luxury developments exceeds supply, with some of the more expensive new developments in Tallinn having fallen in price by as much as 10% during the first half of 2007.
On a more positive note, although the market for new apartments is looking fairly saturated at the moment, demand for suburban houses is bouyant.
Our overall verdict is that Estonia is a good bet for the medium and long-term, but there is a danger of price corrections to the market in the short term and so potential buyers need to take care as to the type of properties that they buy.
Additional Background Information
The above contains our thoughts on the current state of the market. But, like any type of investment, there are no guarantees as prices are always influenced by a huge number of different variables.
You can keep abreast of developments in the market by checking out the articles in our News section where we’ve trawled the Internet for every story connected with property in Estonia so you don’t have to. By checking the news reports regularly and thinking through the consequences of each piece of news, you should be able to get a good idea as to how quickly or slowly property prices in the market are going to rise in the near future.
The information in this section only tells half the story, however as only a small proportion of Estonian property news is translated in English, which means that the locals are getting a lot more useful information than foreigners are.
Investing in the wrong markets could make the difference between making tens of thousands and losing tens of thousands over the next few years. If you’re seriously considering investing in Estonia, then you should think of subscribing to our Premium Service so that you can get all the breaking news from the market at the same time the Estonians are hearing it.