Overview of the residential market in Tallinn and its neighbouring areas (as at the end of December 2016)
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.
In Q4 transaction activity decreased, while price level remained ina growing trend
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. The residential market has lost its activity in Q4 similarly to previous years when the winter approaches. Annually, a price level increased can be noticed in the second half of Q4 related to the impulse purchases in the Christmas month, which was visible also in December 2016. On the 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 a suitable number of offers on the market to satisfy the demand, but the number of offers has constantly decreased within Tallinn for a longer time.
In Q4 2016, 85 transactions were done with improved residential land in Tallinn, by 14% less than in Q3. The arithmetic average of the transaction prices was 230,000 euros and median price, 199,000 euros. Arithmetic average decreased from previous quarter by 3,1% while median price increased by 9,7%. Price decrease was caused by an increase in transactions with older buildings. Compared to the same time in 2015, transaction activity decreased by 20%, arithmetic average transaction price increased by 18% and median price by 10%. On Tallinn residential market, both the transaction activity and price levels have remained on a rather same level for a longer time; due to seasonality, the indicators have changed somewhat more drastically. The growth in price levels in the last months deduces from the transactions with more expensive secondary market and new developments, thus the prices have increased on the residential market as a whole.
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 as a whole, 150 transactions were made with improved residential land in Q4 2016, which was by 16% less than in Q3 and by 8,0% less than in Q4 2015. The calculated average transaction price in the area was 141,000 euros, which was by 4,8% more than in previous quarter and by 15% more compared to the same time in 2015. The transaction activity in neighbouring areas decreased less than in Tallinn, but the moderate growth of price levels has occurred in the same extent in the capital and the surrounding areas. The number of transactions decreased the most in Viimsi and Harku municipality, but Saue municipality has stood out the most in terms of price level and transaction activity.
In December, 26 improved residential land transactions were made in Tallinn, which was 21% less than in November and by 3,7% less than in December 2015. The arithmetic average transaction price was 267,000 euros and median price 233,000 euros. Arithmetic average increased from November by 30% and from December 2015 by 16%. Median price had also increased, increasing from November by 25% and from the same month in 2015 by 19%. Price level increase deduced from the annual emotional purchases at the end of the year, where the Christmas month is characterised by a price level increase both on the residential and the apartment market.
In the neighbouring areas of Tallinn, 67 improved residential land transactions were made in December 2016. Compared to November, the number of transactions increased by 60% and from December 2015 by 26%. In the neighbouring areas, the calculated average transaction price was 147,000 euros, which had increased from November by 35% and from the same month in 2015 by 19%. Growth in the number of transactions deduced mainly from the transactions done in Saue, Rae and Viimsi municipality, and price level growth from the transactions in Saue, Saku and Rae municipality. In areas with developed infrastructure, the short-term changes in on price levels have been much more modest than in areas away from the capital, which is due to new residential areas.
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 in Tallinn individually. 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, developed infrastructure 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 Nõmme, 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
In 2016, 346 improved residential land transactions were made in Tallinn, which is by 9,4% less than in 2015. In terms of the transactions, the arithmetic average transaction price was 247,000 euros and median price 191,000 euros, which increased from previous year by 17% and 8,1%. In Tallinn neighbouring areas, 632 transactions were made, which was by 7,5% less than in 2015. In the neighbouring areas, the average transaction price was 131,000 euros, which increased by 14% from 2015. The number of transactions has been on a somewhat lower level than in earlier years, but the transaction prices have increased quicker than in previous years, this above all periodically in Tallinn.
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 December. Based on short-term statistics, both offer-based price levels and actual transaction prices have increased. During a longer period, the number of offers in Tallinn has decreased more than in Harju county as a whole, which is due to the purchasers’ preference to live above all in the capital or its immediate vicinity and also due to the small additions in offers within the city.
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 coming to an end, depending on the area.
This has been most of all promoted by the changed financing of development activities following the financial crisis and thus property developers’ low interest for planning and developing of residential areas with a complete infrastructure.
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. Based on the statistics of Arco Vara, the average sales period of single-family dwellings, summer houses, semi-detached houses and terraced house boxes in 2016 in Tallinn and its neighbouring areas was 210 days. 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.
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 oneself, 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%. (based on Arco Vara statistics, in Tallinn and its neighbouring areas in 2016 on the average of 4% a year).
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. Statistical average price levels will be mainly influenced by new developments and transactions with more expensive price levels regarding secondary market objects.
Due to the high price level 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. Thus, growth in price levels will be supported above all by consumers who buy residential buildings as an alternative to apartments as well as the constant decline in the number of offers in Tallinn city during the last years. 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.
In Q1 2017, the annual decrease in the number of transactions can be expected due to the seasonal nature of the real estate market, where some moments of decline could be also noticed in the shaping of price levels. Average prices will be retained by both new developments and more expensive secondary market residential buildings but also by the current high prices for offers. In Q1, some addition to the offers of residential buildings was expected due to the seasonal nature of the market, which was mainly due to the fact that in winter, the interest for acquiring real estate and the number of transactions decrease.
 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