Goodson & Red team and T천nu Toompark present:
Tallinn Property Market 2010 Q1 Tallinn property and rental market review
Tallinn Property Market •
The number of loans granted is low, but it has not
situation is still far from optimistic.
curbed the purchase and sales market.
Consumer security is low, the number of unem-
However, it is good to note that consumer security is slowly
ployed people exceeded 100,000.
moving in a positive direction. One of the reasons here is
Prices on the residential property market have hit
that people are less afraid of losing their jobs.
rock bottom and recovery is well under way.
The number of property transactions increased for three The property market of Estonia and Tallinn step into 2010
consecutive quarters in 2009 both in Tallinn and in the
with optimism and hope. We have reason to hope that the
whole country. This is proven by the fact that the number of
residential property market is on its way to recovery as
apartment ownership transactions concluded in Tallinn in
many positive signs have been evident despite the impact
the fourth quarter of 2009 was 1302 in comparison to the
of numerous negative factors.
884 transactions from the first quarter of the year. The increase in the number of transactions is positive and it is
The balance of residential mortgage loans in Estonia has
possible that the price decrease will stop.
been going down slowly and decreased from 97.3 billion kroons in November 2008 to 95.6 billion kroons in December 2009. Loan turnover or the amount of new loans granted every month has hit the bottom and remained between 520 and 660 million kroons in 2009. Banks have been giving positive messages about loosening their loan terms and conditions, but there is still no statistical evidence of actual changes. There have been hints that some banks are planning to start residential mortgage loan campaigns, which is another positive sign. Purchase and sales prices seem to have reached their lowest point in the third quarter of 2009. The average price per square metre in apartment ownership transactions concluded in Tallinn in July 2009 was 11,389 kroons. It had increased to 13,466 kroons by January 2010. There are more and more ‘low-flying vultures’ circling above the market, looking for opportunities to invest in properties that generate cash flow. There is less interest in speculative objects without cash flow that only sell at extremely favourable prices. Interest rates on deposits have dwindled to almost nothing and this is a factor that could make the almost 160 billion
There are many Finnish investors looking around on the kroons held in banks move. Investing in property is a possi- market to find opportunities for small investments irreble movement in addition to other alternatives. spective of low rent income. They use the properties they purchase as second homes or places to stay when coming The mood of the consumer or the consumer security index
over for shopping by themselves or with their friends.
is a very important indicator of people’s readiness to invest, especially when we talk about the residential property However, these investors seem to be hoping to cash in on market. Consumers are not feeling particularly secure at the expected price increase of their properties. People who the moment. The situation is not as bad as it was at the turn of 2008 and 2009 and in the first half of 2009, but the
lack equity finance such purchases with loans taken from
Finnish banks, which are probably secured against their
Owners have often taken their properties off the market in
property in Finland.
the hope that prices will stop decreasing and start going up again soon. Investors also see no reason to get out at any
The low and stable loan turnover and the increasing num-
cost if they have managed to survive until now. Those inter-
ber of purchase and sales transactions show that many
ested to sell want the proceeds to at least cover the loan
purchases are currently financed from personal funds
without bank loans. The decrease in offer prices is still stable. However, we can Residential premises of developers who have gone bank-
see signs that the bottom has been hit and the decrease is
rupt or secondary property market premises acquired by
slowing down. One of the reasons in the decrease of offer
investors in expectation of price increases may arrive on
prices is that the former offers at top prices, which repre-
the market as another factor that has a significant impact
sent completely unrealistic price expectations in the cur-
on the rental market. It is a potential that may considerably rent economic situation, have disappeared from portals. increase offer on the rental market.
Forecast Speaking of the rental market we have to note that the
The price increase is in the past or will soon be put
number of good sales offers has decreased considerably.
behind us. By the end of 2010, we have seen a period
New residential premises with unrealistic prices have been
of at least six months where property prices have not
taken off the market. Those who were prepared to accept losses have already done it. Local buyers are looking for
The decrease in people’s income and high unem-
good family apartments, but unfortunately there is a short-
ployment mean that acquisition of property will re-
age of these.
main possible for a smaller circle of people than before. It is a factor that could have a positive impact
However, the decrease in the number of premises to let and for sale has been stable over the last year. The fact
on the rental market. •
The number of transactions on the purchase and
that many agents are leaving the market has not been the
sales market is on a reasonable level and cannot
reason behind the decrease in the number of offers for
increase much more.
some time now as many agents disappeared in 2008 or the first half of 2009.
Rental Market of the Centre of Tallinn • • •
We do not anticipate any major changes in va-
cancy rates and rents.
The estimated vacancy rate of rental premises still re-
Tenants have become better informed and know
mains around 15%. Assessing vacancy is complicated as
how to stand for their rights.
there is no adequate information about the total number of
The number of offers on the rental market is
premises on offer on the rental market.
growing on account of the rental flats acquired by big or small property investors.
Vacancy has increased a little temporarily, but this was mainly caused by expiry of contracts. The number of offers
is not excessively large in any sector. This in its turn means
Rent prices in central Tallinn within the last quarter have
that the pressure to reduce prices is small.
remained stable at around 80 kroons. There was some fluctuation in January as this is the month when the terms
Demand for large apartments increased at the end of 2009
and conditions of many lease contracts are reviewed. How- and it was difficult to find such apartments for tenants on ever, there is no evidence to suggest that prices are under pressure and could rise or fall significantly.
insecure business by landlords and they sometimes even
No remarkable changes have occurred in the structure of
avoid long-term contracts.
apartment tenants. Tenants in the city centre represent both local people and foreigners. The number of tenants or Another downside of long-term lease contracts for landlords is that rent prices have dropped rather low due to demand has also remained stable. competition. The city centre is preferred as a convenient location close to peopleâ€™s jobs and various services.
Local clients prefer to enter into contracts for an unspecified term, but provided that the contract can be quickly ter-
It pays to mention the large number of students from
minated when necessary under terms that are favourable
France who were looking for rental premises at the start of for the tenant. It can therefore be said that local clients are currently not very trustworthy and landlords are very cauthe year. tious as they do not know how solvent local clients actually
There has been a stable decrease in the number of offers to let. 1284 premises were on offer to let in the centre of
Furnishing Apartments for Rent
Tallinn in January 2010 according to the kv.ee portal. The
Apartments must be furnished before they can be given on
number of such offers a year ago was 1628.
rent with reasonable success. It is almost impossible to rent out an unfurnished apartment and only happens in exceptional circumstances. It can be said that the shorted the period for which the premises are taken on rent, the more furniture there must be in the apartment. Unfurnished apartments can be generally rented out to local clients for a long term or to foreigners who have moved to Estonia permanently. On the other hand, it is understandable that owners are
However, many big and small investors are looking for in-
reluctant to invest in furnishing their rental apartments as
formation at the auctions organised by bailiffs and from
it means that rent income for two or three years will just
other channels as they wish to profit from the purchase
cover the cost of furnishing and it is impossible to make
and sales prices hitting rock bottom and from the antici-
any profit in this time.
pated price increase.
Preferences of Tenants It is not impossible that a development project purchased
There are no areas in central Tallinn that are preferred
from a bankruptcy estate is put on the market fully or in
considerably more or less by tenants. The Old Town stands
part by an investor who managed to acquire it at a good
out with its parking problems.
price and now wishes to rent it out in anticipation of a price increase.
The base of preferences is rational. In addition to the rent price, tenants also pay a lot of attention to accessory ex-
Period of Rent
penses or the total expense of rent. Older houses that are
The length of the rent period is typically from 0.5 to 1 year.
in good order are preferred in certain sense as everything
There are also tenants looking for longer contract periods.
that is good or bad about them is already known. In the
Such clients are usually foreign companies and institutions case of new houses, it may not be clear what living in them might be like when it gets really cold outside. that need accommodation for their employees. However renting apartments to tenants is often seen as an
High utility costs as such have not become obstacles to
entering into lease contracts. To the contrary – the high
Consumer awareness about brokerage and rent costs is improving. Landlords must consider this in
utility costs caused by the cold winter are often the bar-
order to stay competitive.
gaining tool used to make landlords reduce the rent. •
New investors will arrive on the market after pur-
Brokerage and Good Practise
chasing rental apartments in anticipation of a price
It is good practise that the brokerage is paid by the person
increase. It is not impossible that some struggling
who ordered the service or the landlord. The tradition that
development projects will arrive on the market.
brokerage is paid by the tenant, which dates back to the time when rental flats were a deficit, is slow to disappear but the number of tenants who refuse to pay the brokerage is increasing. It does make sense that the person who orders the service pays for it. The awareness of tenants has also improved in respect of
Price Comparison Size of apartment
Rent price range*
rent costs. Tenants do not want to pay for investments into renovation and improvement of the building that are an
* Furnished apartment in a good condition that complies with minimum
obligation of the owner. Tenants should be liable for the
requirements. The rent price range of larger apartments is too wide to be
costs associated with taking the apartment on rent and not
highlighted in this table.
the renovation loan taken by the apartment association.
Rents in the Centre of Tallinn Next 6 Months Forecast
The general price level on the rental market will not
change. Prices may rise or fall in some niches which
United Property Consultants
Goodson & Red
may be temporarily affected by either too few or too many offers of premises to let.
Returns on Rental Business •
Speculative – rental business is based on antici-
ties to increase fast as high unemployment and low con-
pations of price increase.
sumer security speak against it.
Returns on rental in terms of cash flow are a meagre 3 to
We can presume, though, that the prices of apartments will
5% and usually remain at the lower end of the scale. This
be higher than the current extreme in five years’ time.
level of returns means that only minimal profits can be earned on cash flow. Most people who rent our residential
premises expect to earn from the increase in the value of
the property. The purchase and sales prices of apartments have probably hit rock bottom or are about to do it any time now. However, we should not expect the prices of residential proper-
So, what do you think? We would very much like to read your thoughts and experiences. Or if you have any questions you’d like us to address, email, tweet us or leave us a comment on our website or Page.
Return on rent will not increase or decrease, but remain stable between 3 to 5%.
Investment decisions concerning rental premises will be made primarily in anticipation of future price increases and returns from cash flow is secondary as it is only expected to over current expenses.
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NEW! Legal Update by Sorainen Illegal repossession by landlord
ther of these acts terminates the lease agreement, which
The Supreme Court of Estonia clarified landlords’ rights in
means that the landlord can, according to a recent judgment,
court case No 3-2-1-83-09. In this case the tenant was not
claim unpaid rent in full until the lease expires, or the land-
willing to deliver possession to the landlord after the lease
lord signs a lease with another tenant or puts the premises to
agreement expired. The landlord changed the locks on the
use in some other way.
apartment building so that the tenant was unable to use the apartment and tenant’s belongings in the apartment.
In this situation the landlord should be careful in claiming damages because the court may consider this as terminating
The Supreme Court stated that changing the locks is illegal
the lease, thus ending the tenant’s obligation to pay rent and
even if the tenant is using the premises after the lease agree-
triggering the compensation regime. In this case, landlord’s
ment has expired. The Supreme Court clarified that the land-
savings due to the tenant’s absence from the premises, for
lord has no arbitrary right to regain possession from the ten-
example, reduction of utilities costs, should be deducted from
ant other than laid down by law. This case decreases the op-
the amount claimed.
portunity to enforce the tenant’s surrender of possession obligation in the lease contract without filing an action with the
2. The landlord terminates the lease.
court when the tenant is not willing to deliver the premises.
Leaving the premises may not be a breach of contract if the tenant continues to pay the rent, unless the lease includes a
The court also clarified that the landlord is obligated to com-
clause that prohibits the tenant from leaving. However, a land-
pensate for damage caused to the tenant’s belongings during
lord who terminates a lease on the basis of breach by the ten-
illegal (re)possession. The court can reduce damages if the
ant can claim payment of rent in full until termination or if the
landlord can prove that the circumstances partially arose out
landlord has found a new tenant or the lease expires. The Su-
of the activity of the tenant. The landlord may set off the
preme Court ruled that starting from this point the landlord
amount of rent or a rent which is normal in the same place at
can claim the difference between the previous and the present
the same time against damages. This practice is based on a
rent until the date of expiry of the previous lease, if the new
residential lease agreement and it is not possible to estimate
rent is lower than the previous rent. Hence, the Supreme
the consequences to the commercial leasing market.
Court agrees that the difference in rent can be claimed until the agreed expiry date of the lease.
Lease terminations – what to claim from the tenant? Until recently, the law was unclear as to how much unpaid
Note that in commercial leases the law allows the parties to allocate liability between them differently, so that the principles mentioned above may not apply to every lease.
rent the landlord can claim from the tenant if a lease was cancelled because of the tenant’s breach. The prevailing opinion
has been that an unpaid rent claim is limited to 3-6 months.
Sorainen—Baltic Law Firm of The Year www.sorainen.com
1. The tenant attempts to terminate the lease. Very commonly, a tenant applies to cancel a lease without
legal basis for doing so, or simply leaves the premises. Nei-
Kaido Loor (email@example.com)
Summary Economic difficulties have reduced the number of property
The number of rental premises on offer is decreasing
purchase and sales transactions and stricter loan terms
slowly, but it may be a sign of calm before the storm. Pur-
have forced many clients to the rental market. More and
chase and sales prices have reached rock bottom, which
more people understanding that rental apartments are
has activated property investors who are planning to invest
suitable for reducing the risks of price increases and de-
in residential premises in anticipation of price increases. It
creases and you do not necessarily have to own your home. may increase the number of offers both through offers of
single premises as well as the arrival of entire develop-
additional resource that has to help to cover any current
ment projects on the rental market.
The decrease in offer prices is slowing down and the mar-
The fever generated by the possibility of joining the euro-
ket has become rather active, both evidence of the fact that zone next year has had a significant impact on the investrental prices have hit rock bottom just like purchase and
ment environment in Estonia. The first signals are positive
sales prices. It is possible to let out more and more apart-
and show that it is highly likely that the euro will become
ments at the offer price, i.e. without tenants trying to bar-
the country’s currency in 2011. These signals also promise
gain about it. There are also more and more rental apart-
that the exchange rate will be 15.6466, which has been the
ments that attract the interest of several potential tenants. fixed rate used until now. However, we have to keep in mind that we will not know whether the country will be alThe profitability of giving apartments on rent still relies on
lowed to join the eurozone and what the exchange rate will
the anticipated increase in the value of the property. The
be before the middle of 2010.
cash flow generated by renting out one’s property is an
Sample Transactions Studio apartment in the heart of Tallinn
Rent: 7,500 EEK + utilities (asking price 7,500 EEK) Rental period: without a term Details: 66.7 m2, 5th floor, storage, allocated parking, fully furnished Pros: centre of Tallinn, new building, elevator, fully furnished, parking, storage Cons: no balcony Client: foreigner / private individual
4-room apartment in Tallinn Old Town
Rent: 6,250 EEK + utilities (asking price* 6,670 EEK) Rental period: two months Details: 36 m2, 8th floor, fully furnished Pros: downtown (Foorum), new building, elevator, fully furnished Cons: no allocated parking Client: foreigner / private individual
2-bedroom apartment in the heart of Tallinn Rent: 15,000 EEK + utilities (asking price 17,000 EEK) Rental period: 3 months Details: 179 m2, 3rd floor, furnished Pros: spacious, fireplace in the living-room, Old Town, furniture, terrace Cons: no elevator and allocated parking Client: expats of an Estonian company * asking price for two months ! all the transactions were “without commission” for the tenants
Goodson & Red Team
Goodson & Red is a passionate international property con-
deavour to provide ease and comfort through considerate
sultancy dedicated to delivering premier residential and
personalised and professional service to all our clients,
commercial property services in Tallinn.
whoever they are and whatever their needs for property in Tallinn.
Through more than 6 years of consistency in one of the most rapid property markets in Eastern Europe we have
Our services include comprehensive property brokerage
developed an enviable reputation for our in-depth market
services for sellers, home search, long and short term let-
knowledge and expert, considerate personal service. Al-
tings services and a comprehensive professional manage-
though our knowledge is extensive both in the letting/
ment service for landlords. We also offer foreign buyers
management and the selling/investing process, in Tallinn
consultancy to help investors diversify their portfolio, to-
and throughout Estonia we are widely regarded as the
gether with a development consultancy service, providing
market leader in our niche of the property market: serviced effective marketing and branding for developers. short-lets, mid- and long-term rentals, management services, home search, as well as buy-to-let consultancy.
Whatever your requirements for Tallinn property, Goodson & Red is perfectly positioned to help you achieve your aims.
At Goodson & Red we embrace change and are constantly
Please do not hesitate to contact should you have any fur-
challenging tradition because we have a strong desire to
improve the way our industry operates. Unlike some established estate agents, who offer every
E-MAIL us firstname.lastname@example.org
location in Estonia and around the world and claim to be
CALL us on +372 666 1650 or +44 20 8816 8174
experts in all them, we specialise, we grow gradually and study each our market thoroughly, and we are committed to going beyond the sale. Our philosophy is plain: property is our passion, we perform with integrity and values, and relationships are most important for us; we constantly en-
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Goodson & Red Property Experts RED Group PLC, J천e Str 5, Tallinn 10151 Ph: +372 666 1650 / +44 20 8816 8174 E-mail: email@example.com Www.goodsonandred.com
Tallinn, the capital of Estonia, property and rental market review by the small team of Goodson & Red estate agents in association with the...