One of the most interesting markets to analyze has always been a real estate market. The best place to start the analysis is the biggest real estate classifieds website in Estonia – KV.EE. When compared to its nearest competitor, it is estimated that the site receives 65% more monthly traffic than its nearest competitor CITY24.EE. See the comparison below for more details:
Such a big number of monthly visitors is also a good indication that a this real estate portal could be used as a good barometer of what is happening in real estate market in real time. The website is used as a primary source for anyone in Estonia for all things real estate – analyse current property prices, create “for sale” listings, as well as do a price comparison.
While KV.EE makes possible to check the prices and description of a particular property at any given time, the website is missing the ability to provide visitors with additional information, like how is this property being priced, when compared to other real estate objects in that area, how big the potential earnings from this property could be if it is to be rented out, is the property priced above or below the general market, etc.
In this post, we will answer some of these questions, using the data collected from KV.EE for the first two weeks of September. Particularly we will be trying to answer the question, which is the better real estate investment, a 1- or 2-room apartment. The analysis will include the current market prices 1- and 2-room apartment, as well as renting prices.
Property sale prices
From the above data we see, that the cheapest 1-room apartments are available in Põhja-Tallinn and Lasnamäe. But overall the prices for 1-room apartments are more or less equal in the all parts of the city, except the city center.
Analyzing the data further, this can’t be said about the 2-room apartments. There are especially big discrepancies between the prices of 1- and 2-room apartments in Põhja-Tallinn, where the prices for 2-room apartment are 90% more expensive on average, when compared with the 1-room apartment prices.
Why is that. The possible reason is that the average apartment size in Põhja-Tallinn is smaller than in other parts of the city. To test this theory, the prices will be analyzed based not on the overall cost of the apartment but on the price per square m. The finding are below:
Indeed, when comparing the prices/m2 Põhja-Tallinn can compete with Haabersti. The most undervalued properties are 2-room apartments in Lasnamäe and Mustamäe, selling with the biggest discount to the city average for 1- and 2-room apartments. At the same time, 1-room apartments in Mustamäe have the highest value per square m2. The possible reason is the big number of students renting properties near the Tallinn University of Technology. To find out whether this is the case, an analysis of the renting prices is needed to be done.
Property rental prices
The above chart shows the average sales prices for square meter and the average renting prices of 1- and 2-room flats (red and green lines), as well as the number of properties available for rent (blue bars). Basically, the rent price for 1-room apartments is more or less the same, except the city center, staying at about 250€/month. This can’t be said about the 2-room apartments though, renting prices for which are very much different in all parts of the city.
As for the notion, that rent prices in Mustamäe are above the average, this doesn’t hold true, meaning there is no much influence from student arriving to Tallinn to study in Technological University of Tallinn. Prices for 1-room apartments in Mustamäe are staying at 250€/month. This makes them not a very good investments, as their ROI is lower than in case of 2-room apartments, for example.
When comparing the cost of one month of rent to the cost of 1 square meter, the best investments with the highest ROI have turned to be the 2-room apartments in the following areas: Haabersti (27% of m2), Mustamäe (26% of m2) and Lasnamäe (25% of m2). While Haabersti could be a little too expensive, as it has higher square footage for 2-room apartments, which are being priced 12,000€-15,000€ above the ones in Lasnamäe nad Mustamäe, an investor should consider between the latter two.