Within Tallinn, the larger residential areas include above all Nõmme, Pirita, Haabersti and Kristiine district, in a smaller extent, transactions are also made in the city centre north Tallinn and Mustamäe. Due to the high price level of Tallinn consumers purchase increasingly more dwellings to the neighbouring areas of Tallinn, with most residential regions. Annual transaction activity is the largest in Viimsi and Harku municipality. Preferences are higher up to 20 km from Tallinn that can be also considered the zone of working in Tallinn. Outside the neighbouring municipalities of Tallinn and the neighbouring areas of the county’s major centres, purchasers’ interest has remained modest.
Transaction activity and price increase remained in a growing trend in Q3
Due to the seasonal nature of the real estate market, the real estate market became more active in Estonian larger areas in Q3 in August and September. Residential building market is rather little active compared to apartment market and there is usually no significant transaction activity and price level growth. On residential building market, sellers’ price wishes and purchasers’ preferences have remained similar to previous quarters. The price wishes of new development offerers have increased as well as the respective demand. According to Arco Vara, there is suitable number of offers on the market to satisfy the demand.
In Q3 2016, 12% more transactions were made with improved residential land in Tallinn as a whole when compared to this year’s previous quarter. The arithmetic average of transaction prices was 239,000 euros and median price 184,000 euros. The arithmetic average decreased by 5,7% compared to previous quarter and median price by 3,4%. Price decrease was caused by an increase in transactions with older buildings. Compared to the same period last year, transaction activity increased by 18%, arithmetic average transaction price increased by 11% and median price by 2,9%. Indicators of residential building market have remained in a continuing growth trend in Tallinn during a longer period, both transaction activity and price levels have increased.
The residential market dynamics of the neighbouring areas of Tallinn overlaps largely with Tallinn city, moving in the same rhythm as the capital real estate market. In neighbouring areas, 1,7% more transactions were made with improved residential land in Q3 2016 than in the last quarter this year and by 1,6% less transactions than the same time last year. The calculated average transaction price in the area in Q3 was 131,000 euros, which was by 4,5% higher than the last quarter and even by 18% higher than the same time last year. This was mainly due to the more expensive transactions in Viimsi, Harku and Saue municipality.
In October, 28 improved residential land transactions were made in Tallinn; this is 13% less than in September and by 49% less than the same month last year. The arithmetic average transaction price was 210,000 euros and median price 185,000. The arithmetic average compared to September decreased by 22% but compared to the same time last year it increased by 23%. The two-point decrease in the arithmetic average price level deduced from single more expensive transactions that were not done in October, compared to September. Median price compared to September increased by 0,8% and compared to the same month last year by 20%.
In the neighbouring areas of Tallinn, 47 improved residential land transactions were made in October. Compared to September, the number of transactions decreased by 20%, but compared to the same month last year, the number of transactions remained unchanged (0,0%). In the neighbouring areas the calculated average transaction price was 136,000 euros, which increased compared to September by 18% and compared to October 2015 by the entire 24%. The price increase was caused by the more expensive transactions in Rae and Saue municipality and Maardu town.
Improved residential land transaction and price dynamics in Harjumaa and Tallinn city
*As at 31 October 2016
Source: Land Board, transaction database
Tallinn residential market in terms of areas
Viewing Tallinn city and its neighbouring areas as an economic whole, the largest share of improved residential land transactions is formed by Tallinn town. Within the capital, the majority of transactions are made in Haabersti, Pirita, Nõmme and Kristiine district with the most residential areas and where there are the most suitable areas preferred by purchasers. There are more residential areas in north Tallinn, city centre and Mustamäe, but the number of transactions done in these areas is rather low.
The residential market of Tallinn and its neighbouring areas forms the most active complete area in terms of the real estate market in Harjumaa. In areas close to the city, interest for residential buildings and terraced house boxes is growing. The more you move to areas with little population, the smaller is the share on the apartment market. In terms of municipalities, the most preferred areas are close to major roads leading outside the capital, naturally beautiful places and municipality centres.
In areas close to Tallinn, somewhat more transactions are done than alone in Tallinn town. These areas are mainly the small towns and villages in Viimsi, Harku, Saue, Saku and Rae that are characterised by the constant growth of population and construction activity. Besides single dwellings, a widespread trend here is construction of single family and terraced house boxes, the market of which behaves similarly to the residential market. Terraced house and semi-detached house plots are usually smaller and thus with more privacy, thus the prices are somewhat lower compared to single family dwellings.
Regional specificities of the residential market and consumption preferences
Both in Tallinn and neighbouring municipalities, stone construction buildings and buildings with modern heating solutions are looked for (electricity and liquid heating are the least valued), the closed net area of which is between 150-200 m2. In a situation where incomes have grown and the general state of welfare is high buildings in a good state are usually looked for, where you can move in immediately. New developments with a spacious plan, functionality and low utilities are preferred.
The prices of buildings in need of renovation start in Tallinn from about 150,000 euros. The sales offers and transactions of dwellings in a good state are usually between 180,000 – 250,000 euros. In Nõmmel, Pirita, Viimsi and other more exclusive areas, the dwellings are much more expensive. The price of dwellings in a very good state starts usually from 300,000 euros. New developments cost usually 300,000 - 500,000 euros. Very exclusive dwellings in a good location can cost more than million euros.
According to Arco Vara, the typical house purchaser in Tallinn or its neighbouring area is a young family with one up to three children. As for suitable offers, consumers’ selection depends on the household income and thus loan capacity. The price levels of dwellings are higher in Tallinn and in areas close to the sea and the city; when moving away from the capital toward the inland, the prices are getting cheaper due to the distance.
Offer and demand dynamics
On the residential market of Harjumaa, the price levels have grown in a stable rhythm in the last years. Differently from the apartment market, the number of offers on the residential market has remained rather unchanged since 2014. In this year, the number of offers of dwellings in Harjumaa has somewhat decreased from August to October. Based on short-term statistics, offer-based price levels have increased but actual transaction prices have mainly grown compared to previous periods only in Tallinn’s neighbouring areas. Residential building market is characterised by the seasonal decline in the number of offers in autumn and spring.
Consumers prefer new developments and when buying a place to live the suitable property is initially looked among property with higher price; purchasers’ confidence and the requirements set to a dwelling remain high. In Harjumaa, most new developments were created to areas in direct vicinity of Tallinn. New development areas are constantly arising when moving away from Tallinn, because in the most preferred regions close to the city suitable plots are ending, depending on the area.
The average sales time of improved residential land that corresponds to the price and quality expectations is about 8 months and for unimproved residential land up to 12 months, depending on the location and equipment with communications. In areas close to Tallinn with developed infrastructure, the demand for improved and unimproved residential land exceeds the offers; thus, the offer and transaction prices are also higher differently from other areas.
Offer and construction dynamics on the residential market of Harjumaa (single-family, semi-detached dwellings and terraced house boxes)
*As at Q3 2016
Source: Statistics Estonia, KV.ee
For building of an individual dwelling, a year is usually spent in case of constant construction. The big change in the number of construction and usage permits may depend on the fact that absence of usage permit does not hinder using the dwelling but its sale (if the purchaser wants to finance the purchase with a bank loan). As single-family dwellings are usually built for yourself, not for sale, many dwellings receive the usage permit with some temporal shift.
Residential building market is little active when compared to apartment market, thus based on short-term statistics, more important long-term conclusions cannot be made. Occasional statistical price differences depend on transactions with single very high or low transaction prices. Residential market has also price levels in terms of which the purchasers are ready to make concessions in price, thus when reaching the real transaction, the prices of offers and transactions differ usually up to 10%.
After the construction legislation that entered into force on 1 July 2015 residential building market has become more complicated as for Estonian real estate market. When purchasing with a bank loan, the credit institutions require that the documentation related to the dwelling is correct (incl. construction and usage permits, construction project and in case of smaller changes also construction notice/usage notice). Above all illegal buildings need legalisation; this happens mainly with older immovables where several outbuildings have been also built to the yard besides the dwelling.
In addition to available documentation and its importance access to the properties from public roads is also important. Property appraisers encounter many properties for which access from a public road has not been ensured. Until there is no access through a legal servitute, banks do not usually agree to finance the purchase.
Leaving aside the restrictions of commercial banks for enlivening of the residential market, no major changes are expected on the residential building market of Tallinn and its neighbouring areas in the near future. Dwellings are searched and purchased mainly by households that earn more than the average and whose social and economic welfare remains positive according to forecasts in the near future. In a situation where construction prices and the number of dwelling sales offers remain high one cannot expect shortening of sales periods or price levels. Due to the high price level the consumers can choose between apartment and residential building market – for a bigger apartment bought to Tallinn city you can purchase for the same amount a residential dwelling close to the city. According to estimates from Arco Vara, the prices of residential buildings in more demanded areas and plans can rise somewhat, but shortening of the sales period of more expensive residential buildings cannot be expected.
 The neighbouring areas of Tallinn are in this market overview treated as the most active areas in terms of transaction activity close to Tallinn – these areas are hereby Harku, Saue, Saku, Rae, Viimsi municipalities and Maardu town