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Since then it has continued to grow and attract investment, especially from it Nordic neighbours. It proximity to its Scandinavian neighbours, combined with it size has helped the country grow at a faster rate than other new EU members. Estonia is very much flat, with one quarter of the country covered with large bogs that attract various types of tourism to the country every year. Islands along its extended coastline make up nearly 10% of Estonia's territory and forests cover nearly half the country and are home to the European flying squirrel! Despite the high level of urbanisation [about ¾ of the population live in towns], the Estonians maintain strong ties with the countryside and rural life. The climate is on the cool and damp side of temperate, verging on continental as you move inland where, in winter, it can be a few degrees colder than the coast or, in summer, a few degrees warmer. Winters are fairly severe. The waters around some of the larger islands freeze over in mid-January and remain frozen for up to 3 months, during which time the entire country is covered in snow. The country also gets more than its fair share of rain being heaviest in September and lightest during the spring months. Even before its EU membership, Estonia was a popular tourist destination, particularly as a short break getaway for European tourists. The nightlife in Tallinn, the capital, continues to attract many of Europe’s younger populations, drawn to its affordable attractions. The city has continued to appeal to the more refined tourist attracted to the character of the old town and its spectacular architecture. As a tourist destination, Estonia’s appeal will continue. Accessible in a couple of hours and serviced by budget airlines, picturesque and affordable, the country is a realistic alternative to traditional Mediterranean destinations. Overview – Property Investment Market Estonia’s reputation is growing within the property investment market. Rising far above her new European neighbours in terms of infrastructure and growth, Estonia is fast becoming the Baltic’s very own ‘Tiger’ economy with a healthy growth rate of 5.5% in 2004. In fact, all the economic indicators are looking very positive with employment growing steadily last year in construction, transport and communications, areas that suggest a growing emphasis on attracting inward investment and a strong property development market. All these factors have contributed to Estonia being ranked 28th in the IMD’s “World Competitiveness Yearbook” of 2004 and 6th place in the Heritage Foundation’s “Index of Economic Freedom” of 2004. The rankings are a further affirmation of Estonia’s positive economic development, which stands in contrast to many European states, which are now experiencing economic slowdowns. The ‘interest war’ of early 2004, helped fast track thousands of Estonians onto the property ladder and the trend has continued. While interest rates are set to stabilise, the number of property transactions every year in Estonia is growing by on average 16 %. The current interest rates are 60% lower than they were three years ago, so it’s not surprising that home loans are at an all time high. Banks are offering mortgages for as little as 3%. The consequences? Estonia is not cheap, well not that cheap. Demand by Estonians for property has pushed prices far beyond the average that one would expect to pay in other Central and Eastern European countries. On the other hand, it is packed with charm and the character of Tallinn’s ‘old town’ is something many are prepared to pay for. Prices in Estonia rose on average by 10% last year and there is nothing to suggest that the trend won’t continue this year and for several years to come. Estonia does not place restrictions on foreign citizens and foreign companies purchasing apartments, houses or buildings. Foreign companies and individuals also have the first option of buying the land under the buildings they have acquired. However, when buying large areas of forest and agricultural land, Estonian policy requires that a company must be registered in Commercial Register and must have been active in areas of forestry or manufacturing of agricultural products for at least past three years. Points to Note The Estonian government has a right to over-ride a property purchase in Tallinn's Old Town within 60 days of the sale at the same price paid by the seller. Though this is theoretically applicable, it seldom if ever happens. Nevertheless, it is an important point to know. Property that was illegally expropriated after 1944 may be subject to Estonia property reform law. This gives the former property owners or their descendents right to a legal process in which they can fairly reclaim the property. If a property is deemed to come under property reform laws, it is locked and cannot be sold until the outcome of a court case is evident. Most property reform occurred in the early 1990’s and it is not a huge issue when buying property but perhaps something to be aware of when buying older properties in Estonia. Estonian People, Culture and Language You can expect a mix of ancient and modern in Tallinn, Estonia’s capital city. While in many respects it is so modern, often being dubbed a suburb of Helsinki, its old town remains intact as a tribute to the 14th and 15th centuries. Ancient architecture, with its turret and spires, its medieval walls and winding, cobbled streets gives the sense of stepping back in time. However, there is nothing ancient about property prices in the old town. They are by far the most expensive in Tallinn, being up to 40% more expensive than in the outskirts. The Estonian people don’t appear on first impressions the friendliest in the world. It has been said that the Estonians are economical with their feelings, not eager to display any great range of emotions. Don’t be too quick to hug an Estonian as you might be surprised by the horrified reaction that you receive. In fact, even handshakes are not a common practice, except perhaps at ‘official’ meetings. You might be inclined to mistake their cool exterior as discourteous indifference. However, if you hang around for long enough, you will find that the Estonians do like to talk and are a nation proud of their country, history and heritage. The only place one can see an Estonian roaring with laughter, is in a pub. Estonian jokes are for the most part cuttingly ironical and disguised. They are equally directed, without mercy, towards the jokers themselves, their neighbours and the government. Since relations between Estonians and all kind of authorities have always been complicated, an Estonian never trusts anyone merely because of their status. An Estonian is especially sceptical about people trying to teach him what and how he should go about his business. Consequently, he may seem overly headstrong at times. Stubbornness is a quality that an Estonian likes to include in the list of his positive qualities. Estonians associate it with their love of work and faithfulness to the place where they live. Income Tax For non-Estonian Residents Estonia has one of the most liberal individual tax regimes in the world. The existing taxation laws first came into effect in 1994 but have since seen many amendments, particularly during transitions to a free market. As is stands, the Estonian income tax system has a flat rate of 26%, which will be reduced to 20% by the year 2007. In addition, the law on Income tax states that company profits, whether invested or retained, are not subject to income taxations. Non-Residents must pay Estonian tax if their income is generated in Estonia. They benefit from the same rates as Estonian residents. However, while the tax rate is low by comparison to other European economies, the number of allowable deductions for resident individuals is small by comparison. Some credits are given for taxes paid abroad**. Also, while residents are allowed recover 26% of interest paid on mortgages. This privilege does not extend to non-residents. Residency is
determined by the number of day spent in the country. Those who spend
more that 183 days in a calendar year in Estonia or who have a permanent
home in Estonia are considered residents.
The double taxation treaties allow for significantly lower rates of taxation on income derived in Estonia by non-residents. In order to apply the lower tax treaty rates, individuals are required to submit a residence certificate to the Tax Authorities by the 10th day of the month following the payment. Inheritance Tax As it stands, Estonia does not impose any gift, inheritance or estate taxes. This is a significant point when deciding in whose name to purchase a property. In many European countries, gift tax can absorb up to 25% of the value of inherited property. It is often more tax efficient to buy a property in the name of the person who will inherit it. There is no guarantee that Estonia will continue to allow tax-free inheritance, making it an important consideration when buying an Estonian property. Property Taxes, Fees, Charges Property taxes are relatively low in Estonia, and are likely to remain so. In Estonia the land tax is the only real property tax. Land Tax is paid annually on the market value of all land, which will vary by location, land use and environmental features. The taxable value of land is based on an official valuation. The council of the local authority will generally decide the rate of land tax and it will vary among regions from 0.1% to 2.5%. Currently, the rate in Tallinn is 0.6%. The owners of the land are liable to pay the land tax. The Inside Knowledge on Buying Buying property in Estonia is a relatively straightforward and safe procedure. The wheels of the bureaucratic machine move fairly efficiently, meaning that you could have title transferred in as little as four weeks, Foreigners were known to have paid higher prices in the early 1990s, but the market has matured. Foreigners are developing many properties in Estonia now. This combined with the closing gap between foreign and local salaries mean that far fewer people, foreign or local, are being taken advantage of. Most agents meet certain standards within real estate protocol and foreigners getting fleeced is not something to be over duly concerned about. How much can I borrow? Estonian banks
and financial institutions are happy to give finance to foreigners, though
the rates and conditions will not be as competitive as those given to Estonian
residents. Interest rates, however, are very competitive, and can be as
low as 3%. The issued loan amount will depend to some extent on the
type of property. For renovated or new property in Tallinn, banks
will generally lend up to 70% of the property value for a first property,
and 50% of the value for subsequent properties.
How much room for Haggling? There is generally some scope for negotiation on property prices in Estonia. However, unlike some countries the asking price does tend to be very close to the selling price. However, you might expect to haggle 5 to 10% off new properties in Estonia around 5-6% off the price off resale properties. Every situation needs to be assessed on its merits but the selling price is rarely more than 5 – 7% lower than the asking price. And because Estonia is experiencing a building boom, needing up to 3000 new housing units a year, haggling might be a luxury you can’t afford. Buying without an agent? Not recommended! Buying without an agent in a country you are unfamiliar with, even for the most experienced property investor, is looking for trouble. An agent will be familiar with the nuances of the property market and the properties within it. All information about a property is not always evident to an unsuspecting buyer. Some building may be protected under heritage regulations. Properties may have undisclosed loan obligations for past improvements made by them. If you buy in Tallinn’s old town, there are strict rules concerning remodelling and construction. For countryside properties, there are laws that may prohibit ever receiving planning permission on a property, particularly if it located by riverbanks or lakeshores. Being aware of these issues, allows you assess the purchase price more realistically. Working without an agent could lead to you being stung by a bad investment. Agents commission, what to expect? Never expect to pay more than 7% on agent’s fees. Typically they average between 3 and 7%. Typically, commissions for the buying and selling agents are included in the sales price of a property. Before working with any agent, be sure to verify the fee structure and establish whether or not you find it reasonable. Additional Charges The Notary is responsible for overseeing the transfer of ownership of property in Estonia. Notaries play a necessary role in the closing process and are paid separately. In Estonia, their fees are fixed by the state ranging from 0.4 to 1.0% of the transaction value. A notary will perform the function of a legal representative making sure the title is genuine and that there are no claims against the property you are buying. However, it is important to remember that the notary is a neutral party and acts accordingly. Top Floor and Bottom Floor Apartments – A Word of Caution Top floor and bottom floor apartment will always be more difficult to sell in Estonia and so cheaper to buy. There should however be no startling difference in rental yields on such properties. Expect to pay under the odds for these properties when buying in Estonia, particularly in older buildings needing renovation or newly renovated apartment buildings. This is a throw back from the pre-1991 days when leaking roofs were notorious in older Estonian building. Survey By law, new homes that are built in Estonia come with a two-year building guarantee, which is not long by international standards. This makes the need for a quality survey all the more necessary. You don’t want to buy a new apartment to find that the plumbing is not up to standard or floors are uneven. It pays in the long term to have a house properly looked over by a surveyor. As with any country, new homes don’t automatically guarantee quality. Workmanship can quite often be shoddy. Having an expert prepare a list of problem areas allows you to negotiate with the builder for improvements or lower prices or may help you decide that you don’t want the property at all. Price Overview Residential Property The most expensive housing is situated in the old town and city centre areas. You might expect to pay between €1800 and €2400 per sq metre in the more exclusive streets of Tallinn’s old town. However, the average price level in Tallinn is around €900 - €1200 per sq m. In Tallinn’s suburban areas, prices can be as low as €550 per sq. metre for older apartments. You shouldn’t expect to pay much more than €700 per sq. metre. For newer apartments in the suburbs prices range from €900 to €1600 per sq. metre. Over the past five years prices in Tallinn have increased by more than 100%. Most new builds sell off the plans and are sold complete with interior decoration. Demand in Tallinn for 2- 3-roomed apartments has grown, particularly in the suburbs. This is in contrast to its Baltic counterparts, Riga and Vilnius, where demand is largely for 1 –2 roomed apartments. The result is a 5% rise in average prices for 3-roomed apartments. Bear in mind, when buying older apartments in Tallinn’s city centre that these can take up to twice as long to sell as a similar sized new apartment, sometimes up to six months. Generally they are overpriced and there may be room for serious negotiation on such a property. They will however appreciate over time in line with newer properties. Also expect to pay up to 40% more for any type of property for sale in Tallinn’s old town. Demand for such properties has increased significantly over the past year in both the buyer and rental markets. Investor’s interest in new build apartments around the city centre has led to less demand for houses in Estonia. While demand has fallen, prices have remained stable, though selling times are longer. It is possible to find bargain properties in Estonia’s rural areas at extremely low prices and the past year has seen far more of these properties come on the market than in previous years. Commercial Property Over supply of new commercial space, built largely between 1997 -99 has meant that rental yields from commercial units have fallen significantly between 1998 to present day. New or renovated high classes commercial premises will yield up to 12 – 16 per sq. metre per month. This is quite low compared to Riga, where yields can be as high as €25 per sq metre per month. The Buying Process The settlement process in Estonia is fairly efficient, typically taking between 30 to 60 days, although it can be sooner depending on how quickly an appointment can be arranged with the Notary. The Role of the Notary The notary will oversee the transfer of ownership and ensure that it is in accordance with Estonian law. If it is not, recommendations for change will be made since the notary is financially responsible for potential mistakes or violations of the law. Once approved by the Notary, the documents are then signed in the Notary’s office. Bear in mind that the notary’s role is neutral. You will not be advised on any aspects of title, searches or burdens that they property may carry. The Notary will can also handle payments for the property through their account if required. Each party will be issued copies of the contract on signing at the notary office. Notary Fees The most equitable agreement for paying notary fees is to divide the cost equally between the buyer and the seller. Be sure to negotiate this before the meeting. There will also be a small amount of tax [state duty] to be paid by the buyer. This amounts to approximately 0.4% of the property value and is seldom more than 1.0%. The Contract or Pre-Purchase Protocol The "pre-purchase protocol" is the agreement that commits the buyer and the seller to the property sale. It usually requires the payment of a deposit, set at around 10%. The pre-purchase protocol is immediately binding and under Estonian law there is no opt-out period. Once the contract has been signed, you are legally obliged to follow through on the terms of the agreement. Estonian property purchase contracts are generally "firm sale only". In contrast to other countries where you may negotiate a property purchase conditional on getting bank finance or selling another property, it would be very rare for an Estonian property seller to accept conditions on a property sale. Always beware of contracts that have been translated from Estonian to English. A bad translation may compromise the terms of the contract. You are legally obliged to have an accredited translator with you at the notary’s office to take you through the contract and to ensure that you fully understand the terms of agreement. To ensure that the pre-purchase protocol is legally valid, it must be signed by an Estonian Notary. Many agents however do not insist on this procedure since it incurs extras costs. However, without a formal signing at the notary’s office, the terms and conditions of the contract do not have any legal sway. Deadlines may extend longer than they should and other problems may arise. As a final note of caution, make sure that the director of the agency you are working with signs the contract. In order for a contract to be valid under Estonian law, the director of the company and not the agents working for the company must sign the documents. Don’t expect to be handed the deeds of the property once the purchase has been completed. In Estonia, there are no property deeds. A notorized application is made to the Land Register to transfer the ownership of the property to the buyer in the land register book. This cannot happen until the state fee is paid. After this process, the title is legally valid. Public notice of the transfer must be published in the Official State Gazette, though this does not affect the title, which is secured after being noted in the land register book. Getting in and Out of Estonia Flights - There
are regular flights to Tallinn from Amsterdam, Copenhagen, Helsinki, Kiev,
London, Minsk and Stockholm. The airport is 3km southeast of the city centre.
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