Estonia’s housing market is hot, but according to experts, the emergence of a price bubble is still unlikely.
It was the mid-1990s. Mika Sucksdorff had just moved from Helsinki to Tallinn to study.
He was the first to hear the words of warning: You shouldn’t go to Kopli in the evenings or on weekends.
Kopli’s bad reputation has remained tenacious, even though the world around has changed.
Now Mika Sucksdorff comes to Kopli with pleasure.
We are standing on the so-called Kopli lines, and the atmosphere in the area is calm. Both sides of the street leading to Merenranta are lined with a row of new residential buildings.
On the other side of the street, the four-story houses are lined with rust-colored corten steel sheets. Opposite is a cluster of black, wood-clad residential buildings and between them, surrounded by gardens, renovated wooden houses.
– Most of the new sites are currently being built in North Tallinn, and Kopli’s development plays a big role in that, says Sucksdorff.
Since 2006, Sucksdorff has worked in Estonia’s largest real estate agency Uus Maa, first as CEO and since 2009 as a partner.
Those who bought at the right time have received a value increase of more than 300 percent
Sucksdorff describes the development of the real estate market as wild during the past 15 years. Despite that, during the global financial crisis in 2007–2009, the housing market dropped by more than 58 percent in Tallinn.
– If you bought an apartment then, at the moment the price of the apartment has increased by 318 percent since that moment. Quite a good investment if you know how to be on the move, Sucksdorff states.
Now the Estonian housing market is again reminiscent of the situation in 2008 before the economic collapse. Nevertheless, those interviewed by the Estonian public radio company ERR experts don’t believe (you switch to another service) to the bursting of the bubble. The reason is that banks and borrowers are better prepared than before.
– The bubble would require building so much that the developers would have enough apartments. That, in turn, would require a turnaround in the economy, where prices would start to fall. It is not visible.
According to Sucksdorff, in July, trade volumes increased by almost 15 percent compared to a year ago. Prices also continue to rise.
– The increase in material and labor costs has led to the fact that many new projects have been frozen. When there hasn’t been enough supply and demand has remained strong, prices have continued to rise.
In July, the average price per square meter of apartments in Tallinn was 2,801 euros. The new properties had to pay 3,600 euros per square meter.
– And when you look at how the developers have priced the new apartments, the asking prices are already over 4,000 euros per square meter.
In Estonia, the average gross monthly income is less than 1,800 euros. At the same time, the country suffers from the worst inflation in the euro area, which rose to more than 22 percent in July.
Finnish professional investors acquire entire apartment buildings in Tallinn
According to Sucksdorff, Finns are active in Tallinn’s housing market. Most trades were made at the end of the recession in 2009–2010, when prices were at their lowest.
Now, in the last five years, private investors have been joined by professional investors who, for example, buy building complexes from developers for rental use, says Sucksdorff.
– Investor purchase prices have risen sharply in Finland, which has affected rental income. You can get a somewhat better return here than in Finland.
Real estate prices have risen by more than 26 percent in a year, which has made many people wonder if now is the right time to buy or sell.
– Right now, I would prefer to buy and keep my money in real estate. Because if you sell now, fierce inflation will eat money from your bank account.
According to Mika Sucksdorff, the discussion about reaching the price peak started five years ago. Some already made up their minds at that time and sold in the hope of a good account. On the other hand, some Finns have kept their apartment as “retirement savings” and engaged in rental activities.
Finnish customers usually look for an apartment in the center of Tallinn if the buyer intends to rent it. If the apartment is for own use, the most popular destinations are often near the sea, such as in Noblessner.
On the drive back to the center of Tallinn, Sucksdorff stops to look out the side window of the car: a construction company is starting work on the next block of wooden houses in Kopli.
You can discuss the topic until Tuesday, August 23 at 11 p.m.