Overview of the apartment market in Tartu and Tartu county (as at the end of December 2016)

 

Similarly to the entire real estate market of Estonia, the prices of apartments have constantly increased in Tartu since 2009. Similarly to Tallinn, the increase occurred especially in 2013-2014, which was characterised above all by the fast growth of demand and the related temporary scarcity of offers. Since 2015, further growth in transaction activity and price levels has decreased. In 2016, less transactions were made in Tartu town than in 2015, but in the neighbouring municipalities of Tartu the number of transactions increased faster than before. Differently from Tallinn, the once high levels of prices in Tartu and its neighbouring areas had been transcended, but this has been followed by the gradual stabilisation of the indicators.

 

Transaction activity increased in Q4 2016 from the previous year

In Q4 2016, 435 apartment transactions were made in Tartu town, which was by 10% less than in Q3 but by 11% more than in the same period in 2015. In the more active municipalities close to Tartu[1], 142 transactions were made in the previous quarter, which was by 20% less than in Q3 but 22% more than in Q4 2015. Both in Tartu and its neighbouring areas, the number of transactions has remained rather unchanged for several quarters; the number of transactions has remained on a rather similar level with previous periods. The level of transactions in neighbouring areas has fallen to the level years ago, this above all due to the new developments in Tartu municipality.

 

In December, 141 apartment transactions were made in Tartu town, which was 6,6% less than in November but 31% more than in December 2015. In the neighbouring municipalities of Tartu town, 43 transactions were made in December, which was 2,4% more in November and 16% more than in the same time in 2015. Due to the impulse purchases of Christmas, the number of transactions increased less than expected; similarly to the residential market, the prices of transactions increased moderately in November and December but the number of transactions remained on a similar level compared to previous months. Compared to December 2015, much more transactions were made in Tartu but this was due to the situation where irregularly few transactions were made in December 2015.

 

Price level in Q4 remained on the same level as in Q2 and 3

The median price of purchase-sale transactions with apartment ownerships in Q4 2016 was 1,226 €/m² and arithmetic average 1,247 €/m². Differently from Tallinn, not many transactions are made with more expensive new developments in Tartu following from the total number of transactions, thus the influence of more expensive apartments on average prices is rather small. Within the quarter, the average price level was rather volatile, thus changing much – from October to December the median price differed 10% and arithmetic average square metre price 8,2%. The large changes in price levels were mainly due to the transactions in December, which showed the highest price in the quarter. Compared to Q3, median price changed by 0,1% while arithmetic average decreased by 1,8%. Compared to the same period in 2015, median price increased by 6,0% and arithmetic average by 2,1%. Price level increase has been on the same level for the second quarter, but an increase in general price level or median price is still noticeable.

 

The price dynamics of Tartu’s neighbouring municipalities overlaps largely with the county centre being in the same pace as the real estate market in Tartu town. In neighbouring municipalities, the arithmetic average in Q4 2016 was 1,066 €/m², while the price level increased from previous quarter by 6,9%. Median price in Q4 was 1,176 €/m², which had increased by 0,3% from Q3. Compared to the same quarter in 2015, median price increased by 4,3% and arithmetic average by 6,6%. In case of the neighbouring municipalities of Tartu, majority of transactions was made with new developments close to the town, thus monthly and quarterly changes in price levels are rather regular. Areas close to the town are characterised by constant growth in population and a modest but stable activity in constructions, which was the highest in Ülenurme, Tartu and Luunja municipality.

 

The arithmetic average apartment transaction price in December in Tartu town was 1,297 €/m² and median price 1,307 €/m². Compared to November, arithmetic average increased by 4,9% and median price by 7,1%, while price level increase was the fastest in the last three months. Compared to the same month in 2015, arithmetic average increased by 11% and median price by 14%. Price level increase in December was led by 2-4-room new developments and older apartments, while the largest growth was in case of apartments built in 1991-2000 and 2011-2016. Price level decreased in case of  1-room apartments with timber construction. In the neighbouring municipalities of Tartu, the calculated average square metre price in December was 1,143 €/m², which increased from November by 10% and from December 2015 by 13%. The price dynamics there is mainly influenced by the new developments on the border of Tartu town and in Tartu municipalities, where transactions have been started to be made also on the secondary market.

 

 

Tartu town and Tartu county apartment market based on the classification of apartment buildings

Tartu town apartment market has been jointly functioning, but it is formed by different smaller areas, the price levels of apartments of which differ due to location and buildings. To describe the apartment market in Tartu town, the town’s apartment market has been divided into various segments- apartments with wooden construction[2], typical apartments[3] and new developments[4].

 

Apartment buildings in wooden construction are mainly located in older districts – city centre, Karlova, Ülejõe and Supilinn. There are mainly 2-3-floor buildings which have been mainly built in 1920-1960. Apartment buildings with wooden construction are usually less valued than apartment buildings with stone construction. This is due to the fact that these apartment buildings have local heating, the dwelling rooms are small, and the buildings are usually in a satisfactory state and sanitary rooms in many such buildings are still jointly used.

 

Q4 2016 was characterised by some decrease in transactions in Q3 in case of apartment buildings with wooden construction in Tartu town, while the price level also decreased by some percentages. Both in districts and within the districts, price levels have periodically changed which is due to the transactions with apartments that are in a very good or poorer state. Compared to Q4 2015, both transaction activity and price level increased similarly to Tartu apartment market as a whole.

 

The number and price dynamics of Tartu town typical apartments in Q4 2016

Area	Calculated average (€/m2)	Change of calculated average compared to last quarter	Change of calculated average compared to the same time last year	Change in transaction number compared to previous quarter	Change in transaction number compared to the same time last year
Annelinn	954	-1,7%	-1,9%	-11,0%	-14,5%
Karlova	1 001	-24,1%	-9,0%	-18,2%	5,9%
City centre	1 485	-5,2%	3,6%	-18,8%	-27,8%
Veeriku	1 065	-6,9%	3,4%	-20,0%	20,0%
Ülejõe	1 180	3,0%	17,8%	5,9%	100,0%
Typical apartments as a whole	1 058	-6,8%	-0,1%	-8,3%	-1,7%

Source: Land Board

 

Tartu town typical apartments are located mainly in the panel areas in the town, the largest residential fund area of which is formed by Annelinn. Tartu town typical apartments have been built mainly in 1940-1990 similarly to overall Estonia. Typical apartments are in stone construction and mainly up to 5-floor apartment buildings in Tartu town; 9-floor apartment buildings are mainly located in Annelinn and less in Veeriku.

 

In Q4 2016, both transaction activity and price levels decreased similarly to Q3 in case of typical apartments. Following from Annelinn that describes the typical apartment market best, the decrease was the largest when compared to the same period in 2015. In absolute figures, the changes in both indicators have been rather small and have periodically both increased and decreased, thus the situation could be estimated to be stable. Differently from Annelinn, the data of short-term statistics in the districts cannot be provided, since there are too few transactions to evaluate real price levels.

 

Within Tartu town and its neighbouring municipalities, transactions are made in the apartment buildings built in 2001-2010 and 2011-2016 in quite equal amounts. Transactions with apartments built in 2011-2016 are done the most in Tartu town, Tartu, Luunja and Ülenurme municipality. Within Tartu town, new developments are mainly 2-4-floor and in neighbouring municipalities 2-3-floor apartment buildings in stone construction, in the city centre and Karlova single 6-8-floor new developments may be seen. In areas outside the town there are mainly 2-3-floor apartment buildings or terraced house boxes.

 

Q4 2016 was characterised by some decrease in transaction activity and price levels in Tartu county’s new development market similarly to Q3. The calculated average price in the county’s new developments was 1,374 €/m². New development transactions were made by 5,0% less than in Q3 2016, while the price level decreased by 1,4%. Compared to the same period in 2015, a third-level price increase occurred similarly to the previous quarter (+0,6%), while the transaction activity decreased compared to previous quarters.

 

The decrease in transactions was due to the new developments in Tartu municipality, the large share of apartments of which have been now sold. The share of apartments in first use is rather modest in terms of all the county’s apartment transactions, and thus statistic shifts are regular. Differently from Tallinn town, the number of offers in Tartu and its neighbouring areas has not increased significantly due to modest activity.

 

In case of Tartu county new developments, the fact that new developments include often additional surfaces (e.g. storeroom, balcony) has to be considered. The additional surfaces make the square metre prices of apartments rather low, which should be actually 10-20% higher when considering the new developments’ square metre prices. A large share of terraced house boxes have been built in Tartu’s neighbouring municipalities, the sections in which have been registered as apartment ownerships and are thus reflected as ordinary apartments. The closed net surface of apartments in terraced house boxes is larger than in more common apartments, thus the square metre price of new developments can be statistically much lower.

 

Offer-demand dynamics

In 2016, 1 691 apartment transactions were made in Tartu, which was by 1,3% less than in 2015. The arithmetic average square metre price was 1,255 €/m² and median price 1,217 €/m², which increased from previous year by 2,7% and 5,2%. Increase in median price was much quicker than increase in arithmetic average compared to previous years, thus majority of transactions are made on growing price levels. In the neighbouring areas of Tartu 586 transactions were made, which was by 21% more in previous year, differently from Tartu town. The arithmetic average of the transactions was 1 032 €/m² and median price 1 185 €/m², which increased from 2015 by 4,1% and 4,8%.

 

In terms of new developments, most attractive is considered to be Tartu municipality that is characterised by a complete living environment, closeness to the town and acceptable prices. In 2016 the number of transactions increased more outside the town, since the interest for new developments outside the town has been rather high. The number of offers on the market is sufficient to meet the demand, but both Tartu and its neighbouring areas have still market for new developments, according to estimates from Arco Vara.

 

Similarly to Tallinn town, the price level of Tartu county apartments has grown in the last years. Consumers have become more calculating when making a decision to buy and thus the sales periods of objects that are more expensive have become longer. In 2016, Arco Vara statistics shows that the average sales period of apartments in Tartu and its neighbouring areas was 152 days. Extension of the sales periods of apartments has not been noticed; the market is still rather stable due to the stabilised transaction activity and price levels.

 

The growth in price and transaction activity in the last years has been followed by growing number of offers. In terms of 2016, the data of www.kv.ee show that the offers of apartments in Tartu county have decreased since April. Decrease in sales offers continued in December, where the number of offers decreased from November by about 10%. In 2016 the number of offers decreased even by 22%, so it has decreased to the level of H1 2014. The price levels of sales offers has constantly increased on the background of decreasing offers, in December by 1% and in 2016 as a whole by 6,2%.

 

Increased price wishes have started to limit the further growth in transaction activity. Demand for new developments is still high, but the developments within Tartu town can be risky similarly to Tallinn. The prices of plots that suit for development are too expensive. In order to decrease risks, the final consumers should be asked a higher price but the levels of income do not enable developers to raise the prices for ever; this is above all due to the financing of residential loans. Growth in the number of transactions are development activity can be seen above all in more active areas close to the town, this above all on the apartment market in Tartu municipality.

 

Focussing on the future new developments, above all 3-5-floor and 6-8-floor apartment buildings are expected to be finished and developed in Tartu town and its neighbouring areas. To a smaller extent, apartments in 1-2-floor apartment buildings are expected to be finished. The number of issued building permits was the highest in 2015, when 72% more permits were issued than in 2014. In 2016 developments have decreased in pace and the volume of additional residential spaces is much smaller than in previous years. Based on the data of issued building and usage permits, construction activity has stopped significantly after stabilisation of price levels, this above all in Q3 2016.

 

As for the surface structure of rooms to be constructed, 3-5-floor apartment buildings are marked by a trend, where the average surface of apartments decreases. Developers are decreasing the project-based surfaces of apartments, as the square metre prices of smaller apartments are more expensive and thus more liquidous, since more apartments can be purchased due to their small size.

 

Forecasts

When the economic confidence of the population was regained after the financial crisis in 2013 and 2014, the demand for new residential surfaces started to significantly increase, thus prices increased much faster in this period than regularly. Price level increase in Tartu town has been rather significant, since differently from Tallinn town and other areas in Estonia, the price levels of the boom period have been attained much earlier. By now, the quick growth in price level and transaction activity in Tartu town and its neighbouring areas has stopped already for some time.

 

Differently from Tallinn, no over-demand is expected in Tartu town and its neighbouring areas for new developments that would pose significant pressure on the regional price levels. The largest developers in Tartu town and its neighbouring areas are mainly companies whose economic activity is characterised by a stable cash flow; thus, should the apartment market turn, developers cannot estimate with major risks related to loans.

 

In the last half year, the prices of offers have constantly grown due to the decreasing share of offers, but in terms of the year, transaction activity also decreased. The number of offers that decreases quicker than the number of Transactions could benefit some increase in price levels, since new developments tend to be sold out. The price level with Tartu town has started to limit the transaction activity, thus the growth trend of transaction activity in neighbouring areas in 2016 can be expected also in the near future. This is above all due to the fact that the prices of property outside the town are more available and the prices of many potential development plots turn out to be too expensive doe developers within Tartu town.

 

In the next year, inflation is expected to continue increasing and the current growth in wage increase is expected to quickly slow down, thus some decrease in property transactions can be expected in Tallinn and Tartu. Due to decreasing transaction activity, sales periods will be somewhat longer; to reach a transaction the sales professionalism of real estate bureaus will start to have a larger role. The growth pace of the loan residue has been slower due to wage increase; thus, wish to decrease loans and high financing from own sources will be likely retained.

 

The population of Tartu town and Tartu county is constantly decreasing in a longer term due to Tallinn being the main hot spot, but the volume of transactions is retained above all by the residents born in the 80s and the increasing number of households. Similarly to the capital, there is a stable demand for cheap, small and functional rental surfaces in Tartu, which is supported above all by the large share of students and residents moving to town from the countryside. In a situation where inflation is rather low and lending especially beneficial, quicker growth in rental prices is not expected in the near future.

 

In the near future, a rather stable market is expected, where transaction activity and price level could be shaped by international events. Estonian banking is mainly influenced by events on the Swedish real estate market, since about 72% of Estonian private persons’ loans are related to Swedish banks. When the growth phase of Swedish real estate market turns, resources might be invested to the stabilisation of the domestic market, thus the financing criteria of Estonian  real estate purchases might somewhat change. Besides the events related to Estonian loan market, attention could be also turned to the European Union banks and the economic events related to the member states.

 

Apartment market forecast for Tartu and its neighbouring areas for the next half year

Offer prices	Prices of purchase-sale transactions	Purchase-sale transaction activity	Rental prices	Rental market activity
general: ↑ secondary market: ↔ new developments: ↑	general: ↔ secondary market: ↔ new developments: ↑	↓ offers: ↔ demand: ↓	↔	↔ offers: ↑ demand: ↔

 

In Q1 2017, annual decline can be expected in the number of transactions due to the seasonal nature of the real estate market, where some moments of decline can be also seen in the formation of price levels. In January 2016, the number of transactions in Tartu decreased from previous month by 14% and median price by 6,2%. Some offers are expected to be added to the offers that decreased in the first half of 2016, this due to new development projects in the county centres and neighbouring areas. Increase in transaction activity and price levels is mainly inhibited by rather high prices, on the background of which further quick growth in the parameters characteristic to the market is not expected due to too slow growth in incomes.

 

[1] Tartu’s neighbouring areas are the most active areas close to Tartu in terms of transaction activity – there areas are Tartu, Luunja, Ülenurme, Tähtvere and Haaslava municipality.

[2] Apartments with timber construction are treated as apartments which are lcoated in apartment buildings with wooden construction.

[3] Typical apartments are the apartments that are located in apartment buildings the first usage of which is in (before) 1939 - 2000

[4] New developments are the apartments that are lcoated in apartment buildings the first usage of which is in 2001-2017