Much has been made of this fact in the media and many interested buyers have been hunting around for information about the types of property they should be buying and the most ideal locations for purchase - but it’s actually quite disconcerting that so much attention has been given to the fact that Estonia has been at the top of the league with focus seemingly solely centred on the huge rate of growth witnessed in property prices. 

Why has so little attention been given to the reasons behind the rapid and dramatic rate of property price inflation in Estonia? 

Surely understanding the factors driving the market is actually key to answering the question on everyone’s lips – namely ‘will property prices in Estonia continue to rise?’ 

The positive and rapid economic development enjoyed by Estonia in recent years that saw the nation head the streak of Baltic Tigers resulted in unemployment falling dramatically and GDP increasing impressively – this meant that almost overnight Estonian people became more affluent and more able to afford to spend. 

At exactly the same time local banks began offering low interest rate mortgages which were relatively easy to secure, and suddenly a nation of people who had previously been housed in faceless, soulless crowded communist accommodation were able to afford to buy their own home. 

But today the entire situation has changed. According to the Bank of Estonia the nation’s economic growth rate has reached its peak and will now slow down to a more sustainable 7 – 8%. 

There is a real risk in the banking sector that too much loan activity has been focused on the real estate market through mortgages and loans to developers and this may mean it becomes harder to secure property finance in the future. 

Household debt levels have reached an all time high in Estonia in relation to both GDP and disposable income - and if interest rates increase this could seriously undermine the financial situation of those households which have over exposed themselves with loans and mortgages. 

In addition to this Estonian people have no experience of dealing with long term loans, and any external factors that affect their ability to afford their debts could have a seriously negative effect on the property market. 

In the meantime public knowledge relating to the fact that personal debt levels are increasing has already reduced the appeal of the property market among local consumers. 

Higher prices for property in Estonia coupled with the completion and delivery to the market of substantial property stock has halted the dramatic discrepancy in the supply/demand ratio and also resulted in a cooling of domestic activity in Estonia’s real estate market brought about by affordability constraints. 

What all this means is that the entire investment property landscape in Estonia has changed and a great deal of short term property market potential for speculators seeking instant returns has gone from the real estate marketplace in Estonia – but because the nation continues to be an affluent and economically successful country attracting foreign direct investment in abundance and which has a balanced state budget and a flourishing modern market economy, there is continued and sustainable local and expatriate demand for housing – both to buy and to rent - and it is this demand that underpins the fact that there are property investment opportunities still to be had in Estonia. 

Despite the fact that freehold ownership of real estate in Estonia has only been possible since the end of Soviet occupation, the property buying process in Estonia is well established, straightforward and inexpensive. 

The majority of properties being sold to investors and foreign buyers are brand new and off-plan apartments and houses.  This is because the old Soviet style housing requires significant investment to bring it up to modern standards and those who actually wish to live in cities like Tallinn want new, well constructed and finished property. 

Therefore a property investor’s target market of either tenants or first time buyers are demanding properties that have been built using the latest construction methods and also using modern materials such as triple glazing and quality insulation, so it is wise to buy new or off plan to have the accommodation units most in demand and most likely to generate the best profit margins. 

The construction period for off plan property in Estonia is usually between 12 and 18 months which gives an investor plenty of time to finance the purchase. 

This is just one benefit of buying investment property preconstruction and an additional major benefit is that by buying today you are securing your investment at today’s prices and you will benefit from market expansion over the build duration and be able to resell upon completion - if you so desire - and take all that capital gain as profit. 

To buy off plan property in Estonia it’s usual to pay a small holding deposit for whichever unit the investor desires and then to sign a reservation contract - this is like a preliminary contract as it has the terms and conditions of the sale included in it.  Once the reservation agreement has been signed, between 10 and 20% of the final purchase price has to be paid. 

This has to be signed in person in Estonia in front of a public notary.  As soon as it is signed the balance has to be transferred to the property developer via the notary and within a month the stamp duty has to be paid by the purchaser.  The purchase agreement will not be released to the property investor until the stamp duty has been paid. 

The stamp duty is a small sum of money and the only other additional costs associated with buying investment property in Estonia are 0.5% of the purchase price for the notary’s fees, 0.25% of the purchase price for land registry fees and around GBP 70 - 100 for translation fees so as you can see the property buying experience is relatively cost effective! 

Please note however that Estonia does has a land tax that it levies annually, but it only ranges from 0.2% to 0.7% depending on where exactly a property is located.

In terms of buying more than one investment property, many experts advise the real estate investor to set up an Estonia limited liability company which can be done easily for a fee of around GBP 750.  By owning properties through such a company structure the investor can deduct expenses from any taxation liability and also an investor need not pay any tax on profits and income until the company’s profit is actually distributed.  Even then the tax rate is currently only 26%, so if an investor cleverly reinvests all profit back into the company he need never pay any tax! 

And finally, recent developments in the mortgage market in Estonia mean that foreign buyers can now raise finance to purchase property in Estonia and benefit from the country’s low interest rates.  To be eligible for a mortgage in Estonia an investor has to be able to prove annual earnings in excess of GBP 20,000 and also be willing and able to pay a deposit of between 20 and 40% of the property’s value.