Tallinn property housing and rental market review by the small team of Goodson & Red consultants in association with the independent market analyst Tõnu Toompark.

1. Goodson & Red team and Tõnu Toompark present:
Tallinn Property Market
2010 Q1 Tallinn property and rental market review

2. Tallinn Property Market
• The number of loans granted is low, but it has not situation is still far from optimistic.
curbed the purchase and sales market.
• Consumer security is low, the number of unem- However, it is good to note that consumer security is slowly
ployed people exceeded 100,000. moving in a positive direction. One of the reasons here is
• Prices on the residential property market have hit that people are less afraid of losing their jobs.
rock bottom and recovery is well under way.
The number of property transactions increased for three
The property market of Estonia and Tallinn step into 2010 consecutive quarters in 2009 both in Tallinn and in the
with optimism and hope. We have reason to hope that the whole country. This is proven by the fact that the number of
residential property market is on its way to recovery as apartment ownership transactions concluded in Tallinn in
many positive signs have been evident despite the impact the fourth quarter of 2009 was 1302 in comparison to the
of numerous negative factors. 884 transactions from the first quarter of the year. The in-
crease in the number of transactions is positive and it is
The balance of residential mortgage loans in Estonia has possible that the price decrease will stop.
been going down slowly and decreased from 97.3 billion
kroons in November 2008 to 95.6 billion kroons in Decem-
ber 2009. Loan turnover or the amount of new loans
granted every month has hit the bottom and remained be-
tween 520 and 660 million kroons in 2009.
Banks have been giving positive messages about loosening
their loan terms and conditions, but there is still no statis-
tical evidence of actual changes. There have been hints
that some banks are planning to start residential mortgage
loan campaigns, which is another positive sign.
Purchase and sales prices seem to have reached their low-
est point in the third quarter of 2009. The average price per
square metre in apartment ownership transactions con-
cluded in Tallinn in July 2009 was 11,389 kroons. It had in-
creased to 13,466 kroons by January 2010.
There are more and more ‘low-flying vultures’ circling
above the market, looking for opportunities to invest in
properties that generate cash flow. There is less interest in
speculative objects without cash flow that only sell at ex-
tremely favourable prices.
Interest rates on deposits have dwindled to almost nothing
and this is a factor that could make the almost 160 billion There are many Finnish investors looking around on the
kroons held in banks move. Investing in property is a possi- market to find opportunities for small investments irre-
ble movement in addition to other alternatives. spective of low rent income. They use the properties they
purchase as second homes or places to stay when coming
The mood of the consumer or the consumer security index over for shopping by themselves or with their friends.
is a very important indicator of people’s readiness to in-
vest, especially when we talk about the residential property However, these investors seem to be hoping to cash in on
market. Consumers are not feeling particularly secure at the expected price increase of their properties. People who
the moment. The situation is not as bad as it was at the lack equity finance such purchases with loans taken from
turn of 2008 and 2009 and in the first half of 2009, but the

3. Finnish banks, which are probably secured against their Owners have often taken their properties off the market in
property in Finland. the hope that prices will stop decreasing and start going up
again soon. Investors also see no reason to get out at any
The low and stable loan turnover and the increasing num- cost if they have managed to survive until now. Those inter-
ber of purchase and sales transactions show that many ested to sell want the proceeds to at least cover the loan
purchases are currently financed from personal funds balance.
without bank loans.
The decrease in offer prices is still stable. However, we can
Residential premises of developers who have gone bank- see signs that the bottom has been hit and the decrease is
rupt or secondary property market premises acquired by slowing down. One of the reasons in the decrease of offer
investors in expectation of price increases may arrive on prices is that the former offers at top prices, which repre-
the market as another factor that has a significant impact sent completely unrealistic price expectations in the cur-
on the rental market. It is a potential that may considerably rent economic situation, have disappeared from portals.
increase offer on the rental market.
Forecast
Speaking of the rental market we have to note that the • The price increase is in the past or will soon be put
number of good sales offers has decreased considerably. behind us. By the end of 2010, we have seen a period
New residential premises with unrealistic prices have been of at least six months where property prices have not
taken off the market. Those who were prepared to accept decreased.
losses have already done it. Local buyers are looking for • The decrease in people’s income and high unem-
good family apartments, but unfortunately there is a short- ployment mean that acquisition of property will re-
age of these. main possible for a smaller circle of people than be-
fore. It is a factor that could have a positive impact
However, the decrease in the number of premises to let on the rental market.
and for sale has been stable over the last year. The fact • The number of transactions on the purchase and
that many agents are leaving the market has not been the sales market is on a reasonable level and cannot
reason behind the decrease in the number of offers for increase much more.
some time now as many agents disappeared in 2008 or the
first half of 2009.
Rental Market of the Centre of Tallinn
• We do not anticipate any major changes in va- Vacancy
cancy rates and rents. The estimated vacancy rate of rental premises still re-
• Tenants have become better informed and know mains around 15%. Assessing vacancy is complicated as
how to stand for their rights. there is no adequate information about the total number of
• The number of offers on the rental market is premises on offer on the rental market.
growing on account of the rental flats acquired by
big or small property investors. Vacancy has increased a little temporarily, but this was
mainly caused by expiry of contracts. The number of offers
Rent Prices is not excessively large in any sector. This in its turn means
Rent prices in central Tallinn within the last quarter have that the pressure to reduce prices is small.
remained stable at around 80 kroons. There was some
fluctuation in January as this is the month when the terms Demand for large apartments increased at the end of 2009
and conditions of many lease contracts are reviewed. How- and it was difficult to find such apartments for tenants on
ever, there is no evidence to suggest that prices are under the market.
pressure and could rise or fall significantly.

4. Tenants insecure business by landlords and they sometimes even
No remarkable changes have occurred in the structure of avoid long-term contracts.
apartment tenants. Tenants in the city centre represent
both local people and foreigners. The number of tenants or Another downside of long-term lease contracts for land-
demand has also remained stable. lords is that rent prices have dropped rather low due to
competition.
The city centre is preferred as a convenient location close
to people’s jobs and various services. Local clients prefer to enter into contracts for an unspeci-
fied term, but provided that the contract can be quickly ter-
It pays to mention the large number of students from minated when necessary under terms that are favourable
France who were looking for rental premises at the start of for the tenant. It can therefore be said that local clients are
the year. currently not very trustworthy and landlords are very cau-
tious as they do not know how solvent local clients actually
are.
Offers
There has been a stable decrease in the number of offers
to let. 1284 premises were on offer to let in the centre of Furnishing Apartments for Rent
Tallinn in January 2010 according to the kv.ee portal. The Apartments must be furnished before they can be given on
number of such offers a year ago was 1628. rent with reasonable success. It is almost impossible to
rent out an unfurnished apartment and only happens in
exceptional circumstances.
It can be said that the shorted the period for which the
premises are taken on rent, the more furniture there must
be in the apartment.
Unfurnished apartments can be generally rented out to
local clients for a long term or to foreigners who have
moved to Estonia permanently.
On the other hand, it is understandable that owners are
However, many big and small investors are looking for in- reluctant to invest in furnishing their rental apartments as
formation at the auctions organised by bailiffs and from it means that rent income for two or three years will just
other channels as they wish to profit from the purchase cover the cost of furnishing and it is impossible to make
and sales prices hitting rock bottom and from the antici- any profit in this time.
pated price increase.
Preferences of Tenants
It is not impossible that a development project purchased There are no areas in central Tallinn that are preferred
from a bankruptcy estate is put on the market fully or in considerably more or less by tenants. The Old Town stands
part by an investor who managed to acquire it at a good out with its parking problems.
price and now wishes to rent it out in anticipation of a price
increase. The base of preferences is rational. In addition to the rent
price, tenants also pay a lot of attention to accessory ex-
Period of Rent penses or the total expense of rent. Older houses that are
The length of the rent period is typically from 0.5 to 1 year. in good order are preferred in certain sense as everything
There are also tenants looking for longer contract periods. that is good or bad about them is already known. In the
Such clients are usually foreign companies and institutions case of new houses, it may not be clear what living in them
that need accommodation for their employees. might be like when it gets really cold outside.
However renting apartments to tenants is often seen as an High utility costs as such have not become obstacles to

5. entering into lease contracts. To the contrary – the high • Consumer awareness about brokerage and rent
utility costs caused by the cold winter are often the bar- costs is improving. Landlords must consider this in
gaining tool used to make landlords reduce the rent. order to stay competitive.
• New investors will arrive on the market after pur-
Brokerage and Good Practise chasing rental apartments in anticipation of a price
It is good practise that the brokerage is paid by the person increase. It is not impossible that some struggling
who ordered the service or the landlord. The tradition that development projects will arrive on the market.
brokerage is paid by the tenant, which dates back to the
time when rental flats were a deficit, is slow to disappear Price Comparison
but the number of tenants who refuse to pay the brokerage
Size of apartment Rent price range*
is increasing. It does make sense that the person who or-
ders the service pays for it. 1-room apartments 3000-5000.-
2-room apartments 4000-6500.-
The awareness of tenants has also improved in respect of 3-room apartments 5500-9000.-
rent costs. Tenants do not want to pay for investments into
renovation and improvement of the building that are an * Furnished apartment in a good condition that complies with minimum
obligation of the owner. Tenants should be liable for the requirements. The rent price range of larger apartments is too wide to be
highlighted in this table.
costs associated with taking the apartment on rent and not
the renovation loan taken by the apartment association.
Rents in the Centre of Tallinn Next 6 Months
Forecast Property Agent Forecast
• The general price level on the rental market will not Uus Maa → (stable)
change. Prices may rise or fall in some niches which United Property Consultants → (stable)
may be temporarily affected by either too few or too
Goodson & Red → (stable)
many offers of premises to let.
Returns on Rental Business
• Speculative – rental business is based on antici- ties to increase fast as high unemployment and low con-
pations of price increase. sumer security speak against it.
Returns on rental in terms of cash flow are a meagre 3 to We can presume, though, that the prices of apartments will
5% and usually remain at the lower end of the scale. This be higher than the current extreme in five years’ time.
level of returns means that only minimal profits can be
earned on cash flow. Most people who rent our residential
Forecast
premises expect to earn from the increase in the value of
• Return on rent will not increase or decrease, but
the property.
remain stable between 3 to 5%.
• Investment decisions concerning rental premises
The purchase and sales prices of apartments have proba-
will be made primarily in anticipation of future price
bly hit rock bottom or are about to do it any time now. How-
increases and returns from cash flow is secondary
ever, we should not expect the prices of residential proper-
as it is only expected to over current expenses.
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6. NEW! Legal Update by Sorainen
Illegal repossession by landlord ther of these acts terminates the lease agreement, which
The Supreme Court of Estonia clarified landlords’ rights in means that the landlord can, according to a recent judgment,
court case No 3-2-1-83-09. In this case the tenant was not claim unpaid rent in full until the lease expires, or the land-
willing to deliver possession to the landlord after the lease lord signs a lease with another tenant or puts the premises to
agreement expired. The landlord changed the locks on the use in some other way.
apartment building so that the tenant was unable to use the
apartment and tenant’s belongings in the apartment. In this situation the landlord should be careful in claiming
damages because the court may consider this as terminating
The Supreme Court stated that changing the locks is illegal the lease, thus ending the tenant’s obligation to pay rent and
even if the tenant is using the premises after the lease agree- triggering the compensation regime. In this case, landlord’s
ment has expired. The Supreme Court clarified that the land- savings due to the tenant’s absence from the premises, for
lord has no arbitrary right to regain possession from the ten- example, reduction of utilities costs, should be deducted from
ant other than laid down by law. This case decreases the op- the amount claimed.
portunity to enforce the tenant’s surrender of possession obli-
gation in the lease contract without filing an action with the 2. The landlord terminates the lease.
court when the tenant is not willing to deliver the premises. Leaving the premises may not be a breach of contract if the
tenant continues to pay the rent, unless the lease includes a
The court also clarified that the landlord is obligated to com- clause that prohibits the tenant from leaving. However, a land-
pensate for damage caused to the tenant’s belongings during lord who terminates a lease on the basis of breach by the ten-
illegal (re)possession. The court can reduce damages if the ant can claim payment of rent in full until termination or if the
landlord can prove that the circumstances partially arose out landlord has found a new tenant or the lease expires. The Su-
of the activity of the tenant. The landlord may set off the preme Court ruled that starting from this point the landlord
amount of rent or a rent which is normal in the same place at can claim the difference between the previous and the present
the same time against damages. This practice is based on a rent until the date of expiry of the previous lease, if the new
residential lease agreement and it is not possible to estimate rent is lower than the previous rent. Hence, the Supreme
the consequences to the commercial leasing market. Court agrees that the difference in rent can be claimed until
the agreed expiry date of the lease.
Lease terminations – what to claim from the
Note that in commercial leases the law allows the parties to
tenant? allocate liability between them differently, so that the princi-
Until recently, the law was unclear as to how much unpaid ples mentioned above may not apply to every lease.
rent the landlord can claim from the tenant if a lease was can-
celled because of the tenant’s breach. The prevailing opinion Source:
has been that an unpaid rent claim is limited to 3-6 months. Sorainen—Baltic Law Firm of The Year
www.sorainen.com
1. The tenant attempts to terminate the lease.
Very commonly, a tenant applies to cancel a lease without Additional information:
legal basis for doing so, or simply leaves the premises. Nei- Kaido Loor (kaido.loor@sorainen.com)
Summary
Economic difficulties have reduced the number of property The number of rental premises on offer is decreasing
purchase and sales transactions and stricter loan terms slowly, but it may be a sign of calm before the storm. Pur-
have forced many clients to the rental market. More and chase and sales prices have reached rock bottom, which
more people understanding that rental apartments are has activated property investors who are planning to invest
suitable for reducing the risks of price increases and de- in residential premises in anticipation of price increases. It
creases and you do not necessarily have to own your home. may increase the number of offers both through offers of

7. single premises as well as the arrival of entire develop- additional resource that has to help to cover any current
ment projects on the rental market. expenses.
The decrease in offer prices is slowing down and the mar- The fever generated by the possibility of joining the euro-
ket has become rather active, both evidence of the fact that zone next year has had a significant impact on the invest-
rental prices have hit rock bottom just like purchase and ment environment in Estonia. The first signals are positive
sales prices. It is possible to let out more and more apart- and show that it is highly likely that the euro will become
ments at the offer price, i.e. without tenants trying to bar- the country’s currency in 2011. These signals also promise
gain about it. There are also more and more rental apart- that the exchange rate will be 15.6466, which has been the
ments that attract the interest of several potential tenants. fixed rate used until now. However, we have to keep in
mind that we will not know whether the country will be al-
The profitability of giving apartments on rent still relies on lowed to join the eurozone and what the exchange rate will
the anticipated increase in the value of the property. The be before the middle of 2010.
cash flow generated by renting out one’s property is an
Sample Transactions
Studio apartment in the heart of Tallinn Rent: 7,500 EEK + utilities (asking price 7,500 EEK)
Rental period: without a term
Details: 66.7 m2, 5th floor, storage, allocated parking, fully
furnished
Pros: centre of Tallinn, new building, elevator, fully fur-
nished, parking, storage
Cons: no balcony
Client: foreigner / private individual
4-room apartment in Tallinn Old Town
Rent: 6,250 EEK + utilities (asking price* 6,670 EEK)
Rental period: two months
Details: 36 m2, 8th floor, fully furnished
Pros: downtown (Foorum), new building, elevator, fully
furnished
Cons: no allocated parking
Client: foreigner / private individual
2-bedroom apartment in the heart of Tallinn
Rent: 15,000 EEK + utilities (asking price 17,000 EEK)
Rental period: 3 months
Details: 179 m2, 3rd floor, furnished
Pros: spacious, fireplace in the living-room, Old Town, fur-
niture, terrace
Cons: no elevator and allocated parking
Client: expats of an Estonian company
* asking price for two months
! all the transactions were “without commission” for the
tenants

8. Goodson & Red Team
Goodson & Red is a passionate international property con- deavour to provide ease and comfort through considerate
sultancy dedicated to delivering premier residential and personalised and professional service to all our clients,
commercial property services in Tallinn. whoever they are and whatever their needs for property in
Tallinn.
Through more than 6 years of consistency in one of the
most rapid property markets in Eastern Europe we have Our services include comprehensive property brokerage
developed an enviable reputation for our in-depth market services for sellers, home search, long and short term let-
knowledge and expert, considerate personal service. Al- tings services and a comprehensive professional manage-
though our knowledge is extensive both in the letting/ ment service for landlords. We also offer foreign buyers
management and the selling/investing process, in Tallinn consultancy to help investors diversify their portfolio, to-
and throughout Estonia we are widely regarded as the gether with a development consultancy service, providing
market leader in our niche of the property market: serviced effective marketing and branding for developers.
short-lets, mid- and long-term rentals, management ser-
vices, home search, as well as buy-to-let consultancy. Whatever your requirements for Tallinn property, Goodson
& Red is perfectly positioned to help you achieve your aims.
At Goodson & Red we embrace change and are constantly Please do not hesitate to contact should you have any fur-
challenging tradition because we have a strong desire to ther questions.
improve the way our industry operates.
Unlike some established estate agents, who offer every E-MAIL us info@goodsonandred.com
location in Estonia and around the world and claim to be
CALL us on +372 666 1650 or +44 20 8816 8174
experts in all them, we specialise, we grow gradually and
VISIT us in person at Jõe 5, Tallinn 10151
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9. Goodson & Red Property Experts
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