The hot summer month of June caused a decrease in transaction activity in the real estate market, while prices increased in several areas. Clear patterns are emerging regarding the level of interest in different price groups.
Many have raised a legitimate question about why there is talk of a downturn in the real estate market when the median price per square meter often shows growth. As is often the case with statistics, one must look beyond the numbers.
The downturn in the market is best described by the total volume of transactions. For example, in the first half of this year, a total of 10,417 apartments were sold in Estonia, compared to 13,214 during the same period last year. This represents a year-on-year change of -21.2%. The total turnover shows a similar trend: in the first half of 2023, it was approximately 1.239 billion euros in the apartment market, compared to around 1.378 billion euros during the same period last year. This represents a year-on-year change of -10.1%.
Similar magnitudes can be used for all regions of Estonia in general, although several local variations and the proportions of different types of apartments can temporarily alter them.
Since there is a higher demand for well-maintained or renovated apartments with a smaller total area and, consequently, a lower overall price (while the unit price increases with a smaller number of square meters), we see a situation where the total volume of the market decreases, but there is no significant downward pressure on the overall statistical price per square meter
Quality sells, while the middle market faces challenges
Smaller apartments with lower total prices, but in good condition or renovated, sell best and most actively. For example, in Tallinn, the price per square meter for such apartments is 3000 euros and above. If such an apartment also has excellent design and is located in a unique building, auctions may also take place.
Another market segment that is thriving is the very expensive apartment segment. This part of the market lives somewhat independently, not heavily influenced by loan margins or economic fluctuations. Transactions may take longer to materialize, but that is mainly due to the fact that there are fewer buyers, they have time, and they make more certain choices. For example, in June, the most expensive apartment transaction in Estonian history took place, with a spacious penthouse changing hands for nearly 2 million euros.
The most challenging situation is in the so-called middle market, where high-quality apartments in interesting buildings and typical residential units come together. While the first category experiences rapid sales due to limited options, the second group, which forms the largest portion, engages in the most intense price negotiations because the sellers’ expectations do not align with the buyers’ offers or there are disagreements about the quality of renovations.
The process of finalizing a transaction takes longer in the middle market. This group includes apartments in Tallinn with square meter prices ranging from 1900 to 2600 euros (in need of renovations or in a finished condition) as well as apartments with listing prices exceeding 3000 euros, but with renovations or building completion dating back approximately 20 years, no longer meeting modern expectations.
Excluding exceptions, sales of new apartments are slow. The market expectation here is for a more significant price correction.
Warm weather and Midsummer’s Eve slowed down the market
According to data from the Land Board, 807 apartments were sold in Tallinn in June (compared to 947 in May), with a median price per square meter of 3098 euros. While prices increased by 3.4% within the month, the year-on-year increase was 6.3%.
In Tartu, 173 apartments changed hands in June (compared to 185 in May), with a median price per square meter of 2426 euros. While there was a decrease of 5.8% compared to May, there was a 12.4% increase compared to the previous year
In Pärnu, 61 apartments were sold in June (compared to 86 in May), with a median price per square meter of 1985 euros. While there was a symbolic increase of 0.4% compared to May, there was an 11.3% increase compared to the previous year.
In Narva, 67 apartments changed hands in June (compared to 74 in May), with a median price per square meter of 543 euros. Compared to May, there was a growth of 6.9%, while compared to June 2022, there was a growth of 6.5%.