Estonia Property Investment

Estonia Property Investment

I have been getting emails since last November when our last deal in Parnu in Estonia sold out very quickly – and two of the original investors have already bought further properties there.

In fact last month I received a text from one of our investors telling me he and his wife had just been walking on the frozen sea, enjoyed a bottle of wine while in the sauna in their apartment and enjoyed a slap up meal in their new local restaurant!

Our last deal in Estonia has sold out - for our latest overseas deal, go to Overseas Investment Deals

WHY ESTONIA?

Well I am amongst the many fans of Eastern Europe, as the potential is quite incredible – and when I started researching more I felt the Baltic nations offered some excellent opportunities – and yet are hardly mentioned in the UK.

What do I look for when searching for a great deal for investors?

Great Value for money – ie low cost in comparison to other similar deals

Established yields, with an effective and efficient management/letting option for buy to let investors

Low cost of borrowing

Clear economic reasons for future growth

A Clear Exit Strategy

These may all seem straight forward and pretty obvious, but the established yields is one that is often forgotten when investors are looking at newer, less established markets. As I mentioned in a previous article, cashflow is very important for me – and therefore I am looking for rental yields that will at minimum cover the cost of borrowing and owning the property, so there is no pressure to sell - and therefore you are in a strong position to enjoy the capital growth.

But before I consider investing in Estonia property,

is Estonia safe, I was asked before I left on my first trip?

And where exactly is it?!

Lets take the first question – clearly this is a key consideration for any investor ie how much risk am I taking?

The World Bank and International Finance Corporation, the private sector arm of the World Bank Group, co-sponsor a report called the “Doing Business Report”, which puts together an annual league table ranking 155 nations on key business regulations and reforms for “The ease of doing Business” and their economy, and is based on the efforts of more than 3,500 local experts – business consultants, lawyers, accountants, government officials, and leading academics around the world, who provide methodological support and review.

It looks at 10 key measurements which are,

Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Closing a Business

Starting a Business

Dealing with Licences

Hiring and Firing

Registering Property

Getting Credit

So where would you think Estonia would come in?

Well this year they were 16th out of 155 countries.

This was the summary given in the report,

“New Zealand has the most business-friendly regulations in the world, as measured by the Doing Business indicators. Singapore is the runner-up. The United States is third. Five other East Asian countries -- Hong Kong (China), Japan, Thailand, Malaysia and Korea -- are among the top 30. So are the Baltic countries -- Lithuania, Estonia and Latvia. Their ranking is a remarkable achievement, as only a decade has passed since they first implemented reforms.”

Just to give an idea of where some established countries finished – Spain are 30th, France 44th, and Italy 70th!!

Does this mean anything? Well alongside the fact that the economy is growing so quickly, the mortgage market is growing so quickly, and the house prices are relatively low then this is an excellent sign for Estonia property.

And where exactly is Estonia?

This is another key reason why it is such a good place to invest. Estonia sits to the left of Russia, and just below Finland, separated only by the Gulf of Finland. Below Estonia is Latvia and Lithuania – but it is the relationship Estonia has with Finland which is the most important for Estonia.

Estonia in many ways identifies itself more with its Nordic EU neighbours across the sea than with the two other Baltic countries, which is clearly an excellent sign for the Estonia property market.

Finland along with the other Nordic countries, have moved to Estonia to cut costs and become more competitive at home and around the world. In fact, 74 percent of the total FDI in Estonia is from the Nordic countries. This is more likely to bring Estonia in line with these countries in terms of wages and GDP, again showing why now is the right time to invest in the Estonia property market.

- A high quality legal framework with minimal government interference.

- A strong Scandinavian summer tourist market means the country is attractive for foreign property investors.

- Opportunity to borrow at interest rates of around 3-4%! This makes it very favourable lending conditions for overseas investors with the mortgage application very straight forward. Estonian banks are also prepared to lend Estonian nationals up to 95 percent of the value of the property, provided the monthly payments are no more than 40 percent of their take-home pay which shows that property is affordable for the local population – again an excellent sign for investors in Estonia property as it ensures a strong local market.

- Clear land ownership. There are no problems buying Estonia property when it comes to land ownership. Local authority and government databases have all Estonian land registered so there is no way an individual can claim what you have rightfully bought.

- GDP Growth rate 6%, Inflation 3.7%

- Huge increases in tourism, with huge increases still to come. Foreign accommodated tourism in Estonia increased by 30 percent in 2004 compared to 2003 from 1.05 to 1.36 million tourists making it Europe’s fastest growing tourist destination. If we compare Helsinki which has 8000 hotel rooms, and is comparable in population size to Tallinn, which has only 3,000 hotel rooms we can see there is plenty of growth still to be seen.

Already, there is a massive shortage of hotel accommodation during the peak summer periods, to such an extent it’s impossible to find a hotel room at the last minute.

For the small investor in the Estonia property market, this means there’s a great opportunity for holiday apartment rentals.

- Prices are cheap - A beer is 50p, a three-course-meal is from £10 and taxis are around £2 – and for a Scotsman this is particularly good! We ate in an excellent Italian restaurant for £15 for two of us in Parnu.

- Property prices will increase in line with wages, which are increasing 10 percent a year. At the moment Estonian wages are just 20 percent of the EU average. - By 2008 Estonia plans to become completely wireless - that’s the entire country connected via wi-fi. They will be the first country to achieve this in the world which shows they are technically very advanced.

- The budget airline factor - Easyjet are now flying to Tallinn from just €3.99 one way. In addition, Estonian Airlines have reduced air fares by approx. 40 percent. This has had a huge impact on the number of travelers already – I traveled on Easyjet for £100 return, and only booked my flight 2 days before travelling.

Tallinn has some excellent opportunities for investors – as have some of the secondary towns. I spent 3 days in Parnu, the summer capital city of Estonia before meeting contacts in Tallinn.

Parnu has an excellent beach – along with some fantastic culture, and some beautiful architechture, but don’t just take my word for it - Janet Street-Porter recently reviewed Estonia in the Independent, where she said,

“….the real attraction in Pärnu is the wide, sandy beach. It lies at the end of a beautiful park, reached by a series of wide, leafy avenues of lime trees bordered by swanky villas, mostly built in the Twenties and Thirties for rich Germans, Swedes and Russians who would come here to play.

Pärnu hosts a series of musical, film and cultural events in the summer, from concerts to ballets and plays. The town feels like a sleepy Baltic version of Santa Barbara - a place where the wealthy came to gamble, take the spa waters, indulge in mud baths, drink and dance.

For me the Estonia property market ticks all the right boxes - safe place to invest, low cost of borrowing, economic growth, and an established rental market.

Channel 4's A place in the Sun - had Estonia at number 4 in their top 20 places to invest in the world in January 2006, and I would certainly agree it is right up there.

Any questions on Estonia, and Estonia property, just email us at estonia@property-investment-deals.com

For Janet Street-Porter's full article and review on Estonia, click on the link below Janet-Street-Porter's Estonia property review

Any questions you would like to ask me on Estonia property, or any of our other deals, email me at info@property-investment-deals.com