Rise and Fall of the Estonian Real Estate Market

Its all about supply and demand. Real estate priced raised rapidly in Estonia until they crashed a few years ago. Its mostly blamed on greedy Swedish banks and stupid borrowers in Estonia but there is also a strong demographic element in play.

Only young people who buy or rent their first home create new demand in real estate market and only the old who die create new supply. People who only switch places don’t create new demand or supply.

Estonian real estate boom coincided with a large surplus of young people on the real estate market compared with the pieces of real estate that were left from the deceased. But from 2018 the number of 25-year old people will fall far below the number of the dying. This will create a strong surplus of supply with the inevitable push for ever-lower prices.

Oversupply will be even stronger when we will take account of migration patterns. In Estonia migration may not be such a big issue (but it will be in Latvia and Lithuania), but internal migration will complicate matters. Already now in some rural regions of Estonia some forms of real estate (apartment blocks) are almost worthless, while moving to bigger cities increased inflationary pressures there.

In the future real estate owners in Tallinn and Tartu can only hope that people from other regions will still move there because only this can save value of their real estate.

[Vahur Koorits is an Estonian journalist and you can follow him through his articles on Postimees and his posts on his personal blog.]