Investing in the Baltic Tiger: What Has Estonia Got to Offer?

Estonia's reputation is growing within the property investment market. Rising far above her new European neighbours in terms of infrastructure and growth, Estonia is fast becoming the Baltic's very own 'Tiger' economy with a healthy growth rate of 5.5% in 2004. In fact, all the economic indicators are looking very positive with employment growing steadily last year in construction, transport and communications, areas that suggest a growing emphasis on attracting inward investment and a strong property development market.

All these factors have contributed to Estonia being ranked 28th in the IMD's "World Competitiveness Yearbook" of 2004 and 6th place in the Heritage Foundation's "Index of Economic Freedom" of 2004. The rankings are a further affirmation of Estonia's positive economic development, which stands in contrast to many European states, which are now experiencing economic slowdowns.

The 'interest war' of early 2004, helped fast track thousands of Estonians onto the property ladder and the trend has continued. While interest rates are set to stabilise, the number of property transactions every year in Estonia is growing by on average 16 %. The current interest rates are 60% lower than they were three years ago, so it's not surprising that home loans are at an all time high. Banks are offering mortgages for as little as 3%.

The consequences? Estonia is not cheap, well not that cheap. Demand by Estonians for property has pushed prices far beyond the average that one would expect to pay in other Central and Eastern European countries. On the other hand, it is packed with charm and the character of Tallinn's 'old town' is something many are prepared to pay for. Prices in Estonia rose on average by 10% last year and there is nothing to suggest that the trend won't continue this year and for several years to come.

The most expensive housing is situated in the old town and city centre areas. You might expect to pay between ?1800 and ?2400 per sq metre in the more exclusive streets of Tallinn's old town. However, the average price level in Tallinn is around ?900 - ?1200 per sq m. In Tallinn's suburban areas, prices can be as low as ?550 per sq. metre for older apartments. You shouldn't expect to pay much more than ?700 per sq. metre. For newer apartments in the suburbs prices range from ?900 to ?1600 per sq. metre. Over the past five years prices in Tallinn have increased by more than 100%. Most new builds sell off the plans and are sold complete with interior decoration.

Estonia does not place restrictions on foreign citizens and foreign companies purchasing apartments, houses or buildings. Foreign companies and individuals also have the first option of buying the land under the buildings they have acquired. However, when buying large areas of forest and agricultural land, Estonian policy requires that a company must be registered in Commercial Register and must have been active in areas of forestry or manufacturing of agricultural products for at least past three years.

Buying property in Estonia is a relatively straightforward and safe procedure. The wheels of the bureaucratic machine move fairly efficiently, meaning that title can be transferred in as little as four weeks. Foreigners were known to have paid higher prices in the early 1990s, but the market has matured. Foreigners are now developing many of the new properties in Estonia. This combined with the closing gap between foreign and local salaries means that far fewer people, foreign or local, are being taken advantage of. Most agents meet certain standards within real estate protocol and foreigners getting fleeced is no longer something to be overly concerned about.

Estonia's future is definitely bright and the roar of the 'Baltic Tiger' may well echo the roar of the 'Celtic Tiger' that saw property prices in Ireland increase by 187% between 1997 and 2004, the highest increase in Europe.

Tracey Meagher runs many property newsdesks, including Property Newsdesk Central and Eastern Europe and Property Newsdesk Estonia To learn more about investing in Property in Estonia visit TallinnProperty

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