Estonia Property Investment Guide

Estonia, with its unique location on the Baltic Sea between Scandinavia and Russia, has historically played an important role in trade in this part of northeast Europe. The northern-most of the three Baltic States, Estonia has fared well since the break up of the Soviet Union. Having become a member of the EU in 2004, Estonia has greatly increased its international profile and tourist industry, as wealthy Westerners have discovered the impressive and beautiful Baroque city of Tallinn, and attractive Baltic Coast resorts.

Property Investments Market

1. After becoming a full member of the EU in May 2004, Estonia’s government has maintained a highly favourable and open attitude to foreign investment. Foreign investors are able to buy and sell property freely. As a result of this openness, of all the countries which joined the EU in May 2004, Estonia as received the highest level, per capita, of inward capital investment, totaling over 2,000 million EUR. (Source: Bank of Estonia).
2. Although a country with a population of just over 1.3 million people (Source: Statistics Estonia) and a small property market, the big influence in Estonia has been overseas buyers. Due to their close proximity, smart property investors from Sweden and Finland have been investing in Estonia for several years. However, property investors from all over Europe are now not far behind, as they have begun to realise the potential in Eastern Europe and to diversify their assets into this high-growth investment market.
3. Estonia is scheduled to replace its national currency, the Kroon, with the Euro in January 2007. As proven with other Euro currency countries, this has meant that residential property values have been rising steadily since May 2004, with prices in Tallinn increasing by 12% over the past year. The Institute of Chartered Surveyors (Rics) has found that house prices in Estonia rose more than any other European country last year.
4. During the past five years Estonian wages have increased steadily by an average of 10% per year, currently at about 20% of the EU average. If this trend continues and property prices increase in line with wages, many predict that Estonian property prices have the potential of doubling within the next three to four years. There is certainly nothing to suggest that the trend won’t continue this year or even for the next few years.
5. International Credit Rating agencies mark Estonia as a strong emerging market:
   • Moody’s: A1
   • Standard & Poor: A-, outlook upgraded to positive from December 2003
   • Fitch: A, outlook upgraded to positive from October 2003.

Low Interest Rates and favourable lending conditions

1. Between 1995 and 2005 interest rates in Estonia fell from 12% to their lowest ever, starting at 4.5%. As of June 2006, rates averaged at 4.3% and are predicted to fall to 3.2% in 2007 (Source: Bank of Estonia). This is the lowest rate in its’ history and rates are predicted to remain low due to a controlled economy and fierce competition between banks. Estonian banks will lend a foreign investor up to 75% of the value of the property in Estonia, provided proof is given of the ability to repay the loan.
2. The low interest rates have not only encouraged foreign investment in Estonia but have also meant greater affordability for Estonian citizens. This accessibility for a much larger share of the population, to whom buying property would previously have been out of reach, has increased the demand for property. With this change in the attitude amongst the population, preferring to buy rather than rent, the trend should continue to support the housing market in the future.

Rental Market Opportunities

1. The rapid growth in tourism during the past few years is clearly leading to an equally rapid growth in holiday rental accommodation, mainly in Tallinn and Parnu.
2. Increasing tourism means more new businesses, more new jobs generated and more people available to buy and rent properties. Rental yields, particularly in the old town in Tallinn, are a healthy 8-10%. As the city becomes increasingly popular as a city-break destination, it should provide an increase in real estate demand and bring an upward trend to property prices, particularly in the historic city centre.
3. The current shortage of hotel accommodations, particularly in the peek seasons, brings a great opportunity for holiday rentals to the small property investor.

Taxes

1. Property taxes in Estonia are relatively low and are likely to remain that way. In Estonia the land tax is the only real property tax, as buildings are not taxed separately. Keep in mind that, as with many other countries, an individual who is resident in Estonia is liable for tax on their income outside Estonia as well their income in Estonia.

There are two main areas to invest in property:

1. Tallinn – Located on the northern coast of Estonia on the Gulf of Finland, about 80 kms south of Helsinki, Tallinn is the capital city and main seaport of Estonia. With its medieval charm and ongoing and unmet demand for real estate, the influx of investment in the city looks to continue. [Learn More] [View Property]
2. Baltic Sea Coast – This very popular stretch of coastline is located in southwestern Estonia. With its stretch of white sand beach and picturesque old town centre, Parnu is the beach and health resort town that everyone heads for. Since 1996 Pärnu has been known as Estonia's Summer Capital and has been nominated as a candidate for the European Capital of Culture in 2011. [Learn More] [View Property]

1. Economic growth - Although there was an economic slowdown following the re-establishment of independence in 1991, Estonia has been experiencing positive economic growth since 1995. This has been due to a combination of low interest rates, favourable lending conditions for new enterprises, direct foreign investments due to a favourable investment climate and high wage growth. Since 2000 it has enjoyed GDP growth of between 5-8% per year. A GDP growth of 7.8% in 2004 placed Estonia among the fastest growing economies in the region. According to the forecast for 2006 and 2007, the economy of Estonia will grow 8.2% and 7.7% respectively. (Source: Estonian Ministry of Economic Affairs and Communications).
2. Modern infrastructure - Estonia enjoys a modern infrastructure fuelled by a one of the most advanced telecommunications industries in Central and Eastern Europe. The Estonian Ministry of Foreign affairs reports that 93% of the population uses mobile phones and also leads the way in the Baltic States for internet use, with an amazing 55% of the population being users.

1. In terms of tourism, Estonia is officially Europe’s fastest growing country. Compared to 2003, foreign accommodated tourism in Estonia increased in 2004 by 30%, from 1.05 to 1.36 million tourists and by 30% in 2005. This makes it Europe’s fastest growing tourist destination. With this rapid growth accommodations can be hard to come by during peek seasons, offering great opportunities to those wishing to invest in the rental market.
2. Estonia offers many attractions to tourists, including a rich culture and pleasant summer climate. Tallinn’s very attractive medieval centre is one of the main tourist drivers that is helping to boost the tourist economy. According to the Tallinn City Tourist Office, foreign tourists made 1.212 million trips to Tallinn during 2005, and increase of 42,000 or 3.6% from 2004 and the number of overnight vacation trips has increased by 50% in the last three years.

1. Low-cost flights are readily available with EasyJet flying directly to Tallinn from London Stansted and Berlin, along with Estonian Air flights from London Gatwick, Manchester and many other European cities. The flight is about 3 hours from the UK.
2. Flights are available from North America by flying directly to a major European city, such as London and connecting with a low cost carrier from there.

1. Short Stay - As of 1 May 2004, citizens of the EU and of the EEA Member States as well as citizens of the Swiss Confederation are free to enter Estonia without a visa. The only documentation required for them to enter Estonia is a valid personal ID card or passport. In accordance with the EU’s common visa policy, citizens of certain countries do not need a visa for the entry and short stay in Estonia (up to 90 days within six month) this includes the US and Canada (A full list can be obtained from the Estonian Ministry of Foreign Affairs). All other countries require a short-stay visa.
2. Long Stay - Anyone staying in Estonia for more than 90 days (180 days for Brits) needs either a residence permit or a business visa. These documents need to be obtained before arriving in Estonia, as they are not available at the boarder. A long-term residence permit may be issued when you have stayed in Estonia for at least five years on a temporary residence permit. Once you have stayed permanently in Estonia on the basis of a long-term residence permit for at least five years, you may apply for citizenship.