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Mihkel Eliste

Mihkel Eliste

Certified Appraiser / Analyst

Evaluator's cad. nr 116108
Mobile +372 5386 3936
Telephone +372 614 4600
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mihkel.eliste@arcovara.ee

Majority of real estate specialists has forecasted that Tallinn residential market will be losing some of its activity in the near future. In Q3 2016, no negative marks were noted.

                  

Transaction activity was continuingly high in Q3

In Q3, 2,8% more transactions were conducted in Tallinn than in the previous quarter 2016 and by 8,1% more than in the same period in 2015. In the neighbouring areas of Tallinn[1] that were most active 3,0% more transactions were conducted in the last quarter than in Q2 2016 and 10% more transactions compared to the same period in 2015.

 

Based on apartment transactions in October, transaction activity has remained stable in Tallinn, but declined in the neighbouring areas. In October, 2.5% more transactions were conducted in Tallinn than in September 2016 and by 8,3% more than in the same month 2015. In the neighbouring areas of Tallinn, 4,0% less transactions were made with apartment ownerships in October compared to September and by 28% less compared to the same month in 2015. The decline in neighbouring areas has been caused mainly by a decline in the number of transactions with apartments built between 2001-2016 in Rae and Viimsi municipality.

 

Price increase continued also in Q3

The median price of square metre of apartment ownerships in Tallinn was in Q3 2016 1,581 €/m2 and arithmetic average 1 663 €/m2. Arithmetic average price level is influenced also by apartments with higher surface unit price, which are mainly new developments[2]. Nin the period within the quarter the average price level was quite volatile – from July to September median price differed by 2,6% and arithmetic average by 2,8%. Compared to Q2 2016, median price increased by 4,3% and arithmetic average by 5,3%, which shows that the share of new developments in the transactions is growing. Compared to the same period 2015, a 8,4% price increase occurred in median and a 7,6% price increase in terms of arithmetic average price level.

 

The price dynamics of Tallinn neighbouring areas overlaps largely with Tallinn town, being in the same rhythm as the capital real estate market. The arithmetic average price in Q3 in neighbouring areas was 1,318 €/m2 and median price 1,409 €/m2, while price levels increased compared to the previous quarter respectively by 6,7% and 6,3%. Compared to the same period in 2015, arithmetic average increased by 8,5% and median price by 7,3%. A large part of the transactions in neighbouring areas of Tallinn is formed by new developments, thus both monthly and quarterly price level regional changes are regular. The areas are characterised by constant population growth and high construction activity that benefits the economic and social development in Tallinn suburbs, this is also seen in increasing real estate prices in the longer perspective.

 

Arithmetic average in Tallinn in October was 1 622 €/m2 and median price 1 545 €/m2, which decreased compared to September by 3,7% and 3,3%. Compared to October 2015, arithmetic average increased by 5,1% and median price by 5,3%. Compared to last month, the number of transactions with real right contracts of new developments decreased (-6,9%). The price level of typical apartments remained rather unchanged despite some decline, but the number of transactions increased compared to September 4,9%.

 

In October in neighbouring areas, arithmetic average was 1 300 €/m2 and median price 1 311 €/m2, compared to September arithmetic average increased by 0,9% but median price decreased by 3,0%. Compared to the same month in 2015, arithmetic average decreased by 0,2% and median price by 4,8%. The price level has been retained high mainly by real; right contracts related to new developments, major changes are not noticeable in case of apartments with older dwelling fund. Based on October statistics, similarisation of median price and arithmetic average price can be seen; this is due to the decrease in transactions with new developments.

 

Transaction activity and price dynamics of Tallinn city and its neighbouring areas


* As at 31 October 2016

Source: Land Board, transaction database

 

Tallinn apartment market based on the division of apartment buildings

The real estate market of Tallinn town as an economic whole is jointly functioning but it is formed by several smaller areas, the price levels of the apartments there differ due to location and the state of building. As follows, the real estate market in Tallinn has been divided into different parts – Tallinn city and its neighbouring areas typical apartments[3] and new developments.

 

Transaction and price dynamics of typical apartments in Tallinn and its neighbouring areas in Q3 2016

area *

Calculated average surface unit price (€/m2)

Calculated average change compared to previous quarter

Calculated average change compared to  the same time last year

Change in the number of transactions compared to previous quarter

Change in the number of transactions compared to  the same time last year

Haabersti

1 248

2,3%

3,8%

-8,7%

2,2%

Kesklinn

1 825

-3,1%

-3,5%

-8,2%

12,2%

Kristiine

1 603

11,7%

14,7%

-21,6%

-23,3%

Lasnamäe

1 234

0,1%

4,0%

-4,6%

7,2%

Mustamäe

1 348

1,3%

6,9%

-3,0%

-3,4%

Nõmme

1 489

2,8%

2,2%

18,6%

30,8%

Põhja-Tallinn

1 530

3,5%

12,9%

-6,2%

19,3%

Tallinn as a whole

1 427

1,0%

5,4%

-5,8%

4,8%

Neighbouring areas as a whole

886

-4,6%

-6,2%

0,8%

10,5%

* Pirita district has not been indicated due to the little regional occurrence of typical apartments

Source: Land Board, transaction database

Typical apartments are located in Tallinn above all in areas such as Lasnamäe, Mustamäe, Kristiine and Haabersti. The apartments have central heating and are located mainly in 5-9-floor apartment buildings built in 1940.-1990. There are the least such apartments in Nõmme and above all in Pirita district. Outside of Tallinn, Maardu town is the typical apartment market in areas close to Tallinn.

 

Q3 2016 was characterised by partial decline in transaction activity on Tallinn typical apartment market compared to the previous quarter, while surface unit prices stayed mainly unchanged. Compared to the same time last year, there has been a slight increase in price levels and transaction activity. The market segment of typical apartments has been steadily growing and there have not been major changes in Q3.

 

In Q3 2016, the price levels of the typical apartments in the neighbouring areas of Tallinn remained in somewhat decline. Compared to the previous quarter and the same period last year, transaction activity has somewhat increased. Statistical price level decline deduces from the small number of transactions in neighbouring areas; based on the data of Maardu, the price level and transaction activity of typical apartments has changed compared to Tallinn.

 

Transaction number and price dynamics of the new developments in Tallinn town and its neighbouring areas in Q3 2016.

area

Calculated average surface unit price (€/m2)

Calculated average change compared to previous quarter

Calculated average change compared to  the same time last year

Change in the number of transactions compared to previous quarter

Change in the number of transactions compared to  the same time last year

Tallinn as a whole

1 842

1,0%

-3,8%

-18,4%

-18,2%

Neighbouring areas as a whole

1 742

14,2%

18,8%

-30,3%

-24,7%

Source: Land Board

 

The majority of residential fund in Estonia has been built before the 1990s and the following part after the 2000s, thus a new development market segment can be distinguished based on building, plan and quality; this is reflected mainly in the different price level. Within Tallinn most transactions with new developments are made with apartments that are located in apartment buildings built in 2011-2016, but in Tallinn neighbouring areas with apartments between 2001-2010.

 

Q3 2016 was characterised by a decline in transaction activity in new developments in Tallinn compared to the previous quarter, but surface unit prices have remained largely unchanged. Compared to the same time last year, some decline in price levels has occurred but transaction activity has decreased significantly compared to previous periods. It has to be taken into account that a large part of new developments have real right contracts, thus this statistics does not include apartments in apartment buildings that have not yet been taken into use.

 

In Q3 2016, the price level of new developments in Tallinn neighbouring areas remained in a higher growth trend differently from Tallinn. New development prices have increased the most in Rae and Viimsi municipality. Price levels have grown also compared to the same time last year. Differently from price level growth, transaction numbers have declined in all areas close to the city.

 

Demand and offer dynamics

Real estate prices have grown significantly in the last years. Customers purchasing a dwelling have become more calculating in their decisions due to the wide selection, but extension of the sales period is not noticeable. According to Arco Vara, there are sufficient offers on the market to satisfy the existing demand.

 

Customers have started to prefer areas close to the city – because surface unit prices are cheaper and when buying a dwelling to these areas, it is more than just a dwelling. Projects are preferred that besides the general construction quality and price can offer a complete social economic environment and a living environment close to nature. In terms of new developments, market situation is regionally different – in the center, apartments with less rooms are preferred and further away from city, 3- and 4-room apartments. Based on Q3 data, transaction activity in Tallinn neighbouring areas is decreasing.

 

In the last years, price and transaction activity have increased but also the number of offers. In Q3 2016, based on the portal www.kv.ee, the increase in the number of apartment offers in Harjumaa had stopped. Both in September and October, sales offers decreased by 2% compared to the previous month due to the season. Despite the fact that offers have increased in terms of years, decrease cannot be noted in price level change, but the level of the number of offers is certainly stopping the increase in price level.

 

When focussing on new developments coming to the market in the future, 3-5-floor and 6-8-floor apartment buildings are expected to be finished. The number of issued building permits was the highest of the last years in 2015, while the same capacity of issued permits is expected also in 2016. However, real construction activity is started in case of less fewer projects, thus some of the developments remain not realised or the works are conducted later when the local municipality has been informed of the works. Based on the data of construction and usage permits, construction activity will stop in the near future.

 

When looking at the surface structure of buildings, the average surface is growing in case of apartments in 1-2-floor apartment buildings. Developers have started to fulfil consumer expectations in case of the apartments – customers prefer more spacious and bigger apartments in smaller apartment buildings. The average surfaces of apartments in 3-5-floor apartment buildings are decreasing, this is mainly due to the prerequisite that square metre prices of smaller apartments are more expensive and smaller apartments are also more marketable since the apartments are easier to buy due to their smaller size.

 

Offer and construction dynamics of dwellings in apartment buildings in Harjumaa

* As at Q3 2016

Source: Statistics Estonia, KV.ee

 

Forecasts

Following the financial crisis of 2008, the prices of residential property have been increasing in Tallinn and its neighbouring areas since the second half of 2009. When economic confidence started to be regained in 2013 and 2014, the demand for new residential surface started to increase significantly, thus the price increase was much faster. By now, the price levels of Tallinn and its neighbouring areas have reached the top level of years ago. Due to the high number of offers and the competition, price level increase has slowed down and does not have significant space for growth in the current market conditions.

 

In the forthcoming period, new developments to be finished in Tallinn and its neighbouring areas are becoming a problematic point. In 2015, too many building permits were issued for construction of new apartments, thus many new apartments are coming to the market. The share of already previously expropriated apartments is not known, but based on developers’ activities and property financing, the share of properties related to pre-sales is equal to 20-30% depending on the need of self-financing. If the pre-sales of apartments did not go as planned, the buildings under construction can be conservated and the finalisation is postponed.

 

However, major risks are not expected since in case of low interest rates existing loans can be re-financed easier, pay higher interest rates or stop construction works until suitable market conditions. As for loans for development projects, the interest rates are much lower compared to the boom period. Thus, the elasticity of offer and demand dynamics cannot form quickly, thus the period of decline can be quite flexible and stable.

 

Some new development apartments with smaller rooms are likely to move to the rental market. This can start to shape the relationship of quality and price levels on the Tallinn rental market. Certain is however the fact that smaller apartments (kitchen rooms, furnished rooms, rental houses etc) retain their demand and price level as for rental prices. There is constant demand for cheap, small and functional rental surfaces in Tallinn similarly to other major cities, and this is supported by the population growth in Tallinn and its neighbouring areas.

 

Apartment market forecast for Tallinn and its neighbouring areas for the next half year

Offer prices

Prices of purchase-sale transactions

Purchase-sale transaction activity

Rental prices

Rental market activity

general: ↔

secondary market: ↔

new developments: ↓

general: ↔

secondary market: ↔

new developments: ↓

offers: ↑

demand: ↓

↔ (↓)

↔ (↑)

offers: ↑

demand: ↑

 

The future Q4 has been relatively active period on real estate market also previously, which includes both the autumn period with its seasonal activity and also the Christmas period. Reviewing annual offer graphics, a circumstance transpires that the prices of offers start to increase right before the end of the year while offers decrease. In this year, constant new offers are expected in the form of new developments, thus price level should not increase based on the price of offers and the actual transaction price. It is a perfect time for people to purchase a dwelling – the market includes very diverse offers, which are mainly formed by residential surfaces with high construction quality.

 

[1] Tallinn neighboruing areas are the surrounding areas of Tallinn that are most active as for transactions – these areas are Harku, Saue, Saku, Rae, Viimsi municipalities and Maardu town

[2] New developments are the apartments that are located in apartment buildings, the first usage year of which is in 2001-2016

[3] Typical apartments indicate the apartments that are located in apartmnet ownerships, the first usage year of which is in (before) 1939 - 2000