In Estonia, apartment prices started to rise in the middle of last year. There was a lot of activity in the last quarter of last year and it continues.
According to Luminor's economist Tõnu Palm, in Tallinn, apartment prices in March this year had risen by 8.6% compared to March last year. The average price on a new apartment in Tallinn has grown to EUR 3000 per square meter. Palm said that the opportunities to purchase apartments could fall as prices outgrow income.
Although the real estate market in Estonia is described as “hot”, it cannot yet be called a boom.
“There are two basic options what to do with surplus of funds. Real estate or financial investment. Estonians love real estate, so they prefer to buy second or third property and rent it out. So in a situation where demand returns, developers can raise prices, and I see that transactions are rising and prices are rising, but this is not a boom, there is simply a change in sentiment and the developers are using it,” said the economist.
The largest activity in the Baltic is seen in Lithuania. This has been unexpected, said Tadas Povilauskas, economist at SEB Bank in Lithuania. He explained that people were fairly confident about their near and far future, so they do not postpone purchase of property, and demand is very high. Supply cannot keep up.
"We are observing a particularly strong activity in our capital Vilnius. Especially in the market of first-time buying, when we talk about both new apartments and homes. We had new records of new apartments in Vilnius in January and February and March. In the coming quarters, price rises are likely to be higher and are nearing double-digit figure growth," Povilauskas said.
As a reason for the huge activity, Povilauskas mentioned not only savings, but also increase in the average salary. He also added that, for example, in Vilnius, population has grown over the last couple of years – by 10,000 last year.
According to the Ober Haus real estate market report, Lithuania's economy was hit the least but Latvia's the most, which also partially accounts for the trends in real estate market.
Dainis Gašpuitis, economist at SEB Bank in Latvia, said that there is an increase in immigration in Latvia, this will also apply to the Latvian real estate market. Activity in Latvia is growing and has the potential to grow even further, but it is currently relatively low and well below neighboring Estonians and Lithuanians. One of the reasons why people do spend money on real estate is savings that have grown during the limits imposed by the pandemic. It is a relatively narrow group of society and there is still caution.
"To some extent, these restrictions also contributed to the fact that funds accumulated, which are currently used to purchase non-residential property or to improve existing assets. But of course, we're still talking about a relatively narrow group. (..) We see a positive, growing trend, but a large part of the society still lacks confidence about the future to choose to purchase real estate," Gašpuitis said.
He said that primary market activity was determined by how well the economy was doing, and by how safe the population felt. Real estate prices are currently growing in Latvia. Gašpuitis acknowledged that the increase is expected to persist.