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The Estonian Property Express

The Estonian Property Express, published in The Times 29th April 2005
By Sarah Marks
Investors are packing their bags for Tallinn to try to beat the rush

ASK DARREN GOODSON to speculate on the next big thing in overseas property investment and he will put his money on Tallinn. So certain is the London businessman of a long-term property boom that he is liquidating a substantial part of his UK buy-to-let portfolio to invest in the Estonian capital. And he has convinced his brother, business partner and two other friends to buy there too.

They are not alone: when Ryanair and easyJet added the Baltic states to their schedules canny investors took note. Fly-to-let investors have already made their presence felt in Prague, and budget airlines, whether serving the tourist or business market, now routinely feature in lists of key economic indicators drawn up by property investors evaluating distant lands.

Estonia's medieval capital is regularly promoted by the travel industry as the new Prague, but whether this tiny city of just 411,000 is the new property hot spot remains to be seen. Darren, who runs a printing and publishing business in the East End, has no doubts: he has bought three new one-bed flats just outside Tallinn's Old Town and plans to sell three of his eight London properties to buy another ten flats in the city in the next 12 to 18 months.

An amateur property investor even before he left home in Redbridge, Essex, at 21, Darren, now 32, spotted Tallinn's potential when he visited an old schoolfriend working in the country's telecommunications industry three years ago. His friend had fallen for an Estonian girl, but Darren was in the mood for finance, not romance. "At the time Estonia was on the verge of joining the EU, and by speaking to locals I found out prices were going up by 10 to 15 per cent."

Over the next 12 months he did his homework and he liked what he saw. Estonia's GDP grew by 4.7 per cent last year, and the country is attracting large amounts of foreign investment, including substantial European Union grants for infrastructure projects. More than 250 subsidiaries of international companies have been established here since 2003, many from Sweden and Finland (Helsinki is just 1½ hours away by hydrofoil).

Much of the housing stock is poor, Soviet-era concrete blocks. With wages and living standards rising, the pan-Baltic estate agent Ober-Haus predicts that demand will easily outstrip the supply of new-build properties.

A key indicator for Darren was the construction index, which rose by 6.2 per cent last year. "That's a good indication of a rising property market," he says. "Those building costs have to be passed on to the consumer, which means the price of new houses will increase, at least in line with the construction index. This in turn should push up second-hand prices."

Darren also discovered that Estonian banks are willing to lend up to 95 per cent of a property's value, provided that monthly payments are not more than 40 per cent of take-home pay.

Darren, who lives in London Docklands, says his investment decisions are not emotional, but he is an avowed fan of Tallinn. "I liked it from the very first time I went there," he admits. "It's a beautiful place. They're very nice, friendly people, and they've got a good service culture. I like the village atmosphere of a small city - you get a feeling of importance there, whereas in London you can feel like a lost soul."

Wisely, Darren's choice of property reflects his experience in London. He reserved a one-bed apartment in a new building in the fast- growing commercial and residential ring just outside the old city walls. Darren paid £45,000 for his initial 50 sq m flat in 2003 and £50,000 for a further two. His brother Gary paid £61,000 for a similar-sized apartment a few months ago.

Darren put down a 25 per cent deposit and took out an interest-only mortgage with an Estonian bank for the balance. He spent £6,000 kitting out and furnishing each flat, which he hopes to let for £350 a month. After deducting bills of £500, mortgage repayments of £1,200 and agency fees, he believes he will be left with an annual profit of £1,700 on the two flats he hopes to let; he is keeping the first for his own use.

Including capital growth of 10 per cent a year, Darren estimates that he will see a 35 per cent a year return on his investment, but he admits that there is some risk: his figures depend on letting the flats for at least 11 months of the year and his main rental market will be foreign workers or Estonians working for foreign companies. Agents suggest that this is achievable. He says:

"I've been through ten years of property growth in the UK and I see exactly the same thing happening in Estonia. When I bought my first buy-to-let in the UK, friends said, 'You're mad, what if you can't rent it out?' But if you want to be successful, you've got to take risks."

To read Darren's book go to TallinnProperty.com

To read the full article click here



Gang of four: from left, Gary Goodson, Darren Goodson, Mack Patel and Mario Onoufriou have all invested in property in Tallinn (RICHARD CANNON)


Comments: TALLINN TIPS

DARREN GOODSON is not a man to miss an opportunity: he has set up a company advising UK investors in Tallinn and has written a book on buying there that he hopes to publish. Here are his top tips:

Research properties on the web before even booking your plane ticket. Contact estate agents and book viewing appointments before leaving. Once in Tallinn, use taxis, which are cheap.

Tap in to the estate agents' network to find plumbers, electricians and locksmiths and get builders/kitchen fitters lined up about two months in advance. All flats are sold as shells (common throughout Eastern Europe) but do not wait until completion to look for installers.

Get an English-speaking lawyer (try www.sorainen.ee or www.hedman.ee), and use professional translators: as well as translating documents they can also attend meetings with you.

Make sure that you get advice on which taxes you will be liable to pay.

Check all transactions with care. In Estonia the client, not the solicitor, organises the transfer of monies to the seller and the payment of the notary.

Get every quote in writing. It is quite common for extra prices to appear on the final invoice. Check that prices include delivery and installation.


TallinnProperty.com

Loft living comes to Estonia

Tallinn offers more than good stag weekends. British developers see slow but steady returns ahead in the Baltic, says our correspondent

Mention Tallinn these days and the chances are people will immediately think of stag weekends. Every Friday evening the streets of Europe’s newest party capital fill with crowds of young British men — and a few women — drawn not so much by the medieval architecture as by the more predictable pleasures of cheap booze and the wild nightlife.
Most stay only for a few days. But suppose you fall in love with the place and want to buy a slice of it? The first thing to bear in mind is that Tallinn is not cheap — or at least not that cheap. Prices per square metre – the touchstone of the fly-to-letter — are well up by eastern European standards.

The economic fundamentals are good, though — Estonia’s “Baltic tiger” economy is growing fast, the local currency, the crown, is pegged to the euro and local banks are queuing up to offer mortgages for as little as 3%. Prices rose an average 10% or so last year, and are expected to repeat the performance this year.

I started my tour in Raekoja plats, the main square, spectacular under a light dusting of snow. The old town — or Vanalinn, as the locals call it — has been transformed since the Estonians kicked out the Russians in 1991, smartened up with chic cafes, bars and restaurants.

Hidden in the narrow streets radiating out from the square towards Toompea Tower, I came across the ultimate bachelor pad. Tucked up under the eaves of a 15th-century building, it offers 168sq m of space, high ceilings, exposed beams and, of course, the mini-sauna in the bathroom that is de rigueur in these parts. The flavour is distinctly medieval: you almost expect a knight to come in and start loosening his armour. The price, £255,000, is a very 21st-century £1,520 per sq m.

The problem with a trophy apartment like this is that it is so gorgeous you will want to live in it yourself or show it off to your friends, rather than rent it out. Even if you do, the yield will not be great. The pool of potential tenants — almost exclusively foreigners — looking for this kind of property is not huge. Returns, realistically, might be 4%-5% — sufficient to cover mortgage costs, but only just enough.

Canny investors should look beyond the old town to cheaper parts of the city centre, where you can pick up restored or new-build flats for about £800 per sq m, some with parking and wonderful views of the old town. Yields could reach 7%-8%, although rents have been falling in recent months as more locals buy.

The standard of finish is good and although most of the buildings are conventional, a few stand out. I especially liked a former 1930s telephone exchange building, which has been turned into 14 loft-style double-height flats with steel doors, floor-to-ceiling windows and bedrooms on open mezzanine floors.

Surprisingly the developer is a Brit, Julian East, whose London-based company, West One, has been in Estonia for several years. East says buyers were slow to buy off-plan, but were enthusiastic once a show flat had been put in.

“Some people are buying to let, making the most of the rising market, but other people plan to live in them,” he says. “The beauty of it is that people haven’t gone in there and rented the whole thing out, which is the biggest recipe for disaster.”

Those looking for a more modest investment could take a look at the outskirts of Tallinn, where apartment blocks are springing up along the shores of the Baltic. Kerry Yeomans, 54, an international trade adviser from the Isle of Wight, is among a number of Britons buying.

Already in the process of securing a flat in Dubai, he was looking for somewhere else to put his money and came across Tallinn. He has put down a 25% deposit on a new £50,000 one-bed flat. He is due to complete in August, but has yet to set foot in Estonia. He hopes to get £325 per month for it — a yield of 7.8%.

“I was looking for something different to buy in Europe,” says Yeomans. “We did some research: Bulgaria and the Czech Republic came up, but the feeling is that we rather missed the boat and we should be a bit more speculative. It’s a bit of a gamble, but I can’t see we can go too far wrong with it.”

Yeomans’s enthusiasm is proving infectious. Two of his colleagues are buying flats in the same block. Churchill Properties Overseas, which is selling the flat, does not stop at Tallinn’s city limits, offering log cabins along the coast in Parnu, Estonia’s “summer capital”. For £40,000, you can have a 75sq m home sitting on half an acre of land.

The pictures of the summertime beach scenes look idyllic — even though the sunbathers do seem to be wearing suspiciously large amounts of clothing. Somehow, though, at this time of year, with the temperature well below zero and the bay full of fishermen snaring their prey through holes in the ice, a snug little flat in the middle of Tallinn seems a bit more attractive.

By Peter Conradi of The Sunday Times

Buying Property in Europe ? How does it all compare?

From The Independent
Graham Norwood
Published : 23 March 2005

Tim Johnston and Don Ryder are the two faces of property buyers in Europe. Tim hopes his new homes will soar in price by 40 per cent in 2005 despite the slowdown in the British property market - because he has bought in Eastern Europe.

"I sold my flat in Fulham for £275,000 and with the £60,000 equity I've put down 12 per cent deposits on three flats in Eastern Europe with another one to come," says Johnston, a telecoms executive now working for an estate agency.

His portfolio consists of: a one-bedroom flat in the Czech capital, Prague, costing £38,000 and which he will let out to corporate tenants; a two-bedroom flat in a new holiday resort in Croatia for £75,000 that he will rent out to holidaymakers; a two-bedroom flat in an East European ski resort costing £42,000, again for holiday lets; and a flat in Slovakia that he will buy in 2005.

By contrast Don Ryder, a food company employee from Cheshire, says he has set his heart on living in Spain. He has now sold a Welsh weekend home ahead of making what will eventually be a permanent move to the Costa Blanca with his wife, Carol.

Last year they visited more than 10 different properties within a one-hour drive of Alicante before deciding on their chosen two-bedroom house.

"We're going to rent it out during the summers and stay in it ourselves for some of the winters. Prices have been rising a little - about 5 per cent or so, most years - so it'll be a long-term nest egg for us as well. The aim remains to retire here in a few years. At which time we'll sell both our main house in Cheshire and the new home in Spain, and buy a bigger place for our retired years," says Ryder.

However, even this small property in a densely built area of other holiday homes will cost £155,000 - a figure that is now inexpensive by Spanish standards, where sea-view homes with four bedrooms and a private pool can easily exceed £650,000.

So, two men with two different purchases typify the options in Europe. But is the West past its best as the sun rises on the East European property market?

Definitely not. There are plenty who say traditional holiday home markets in France, Spain and Italy still offer the best quality and locations. With prices rising at between 5 and 10 per cent per year in most of these locations - still more than that in Spain - these homes are a predictable, solid investment.

Charlotte Billington of Ultra Villas, which concentrates most of its property sales in Spain, says: "A place like Spain has proved to be a good sustained investment and hard core investors can get steady, strong appreciation. It may not be as high as Eastern European resorts claim on their cheap properties but a 100 per cent gain on a £15,000 flat in Eastern Europe is still only £15,000. That's peanuts."

International homes consultant James Barnes of Newfound Properties says that Western European resorts have historic and abundant infrastructures, unlike the East. "Some parts of the East have beaches, hotels and flats but nothing behind them - their success may not last."

But there is no disputing the growing popularity of areas like Slovakia, Hungary and the Czech Republic. Their prices are so low that they appeal to a new generation of British buyers, and high demand means these homes will see big price rises of up to 30 to 40 per cent if the pundits are correct.

John Howell, an international property solicitor, says most of East Europe has become easily accessible in recent years thanks to budget airline services, and their property values reflect a young market. He predicts price growth will easily outstrip traditional holiday home investment markets like France and Spain.

Some areas have already risen extensively - for example, Dubrovnik has increased 50 per cent and parts of "tourist" Turkey by 30 to 40 per cent in the past two years. He tips areas such as Montenegro in the Balkans, which has remained virtually undiscovered.

Petra Gajdosikova of Slovakia Investment Property adds: "Slovakia's fast-growing economy, as well as its political and social stability, has kick started a real boom in property prices. Bratislava is still the most undervalued EU capital and economists predict between 15 and 20 per cent annual growth for the next three to five years."

In Estonia's capital, Tallinn, prices rose 12 per cent last year. Some suburbs have risen by 100 per cent since 2001 although city-wide prices have risen by an average of 40 per cent.

"There have been very strong increases in Estonia over several years but compared to some markets there's still a long way to go. We predict good capital growth for some years to come as Western companies move in, in greater numbers," according to Ben Mason of Someplace Else, a consultancy specialising in emerging markets.

But there are bureaucratic downsides to buying a home in Eastern Europe. In many of the countries there are disputes between leaseholders and freeholders over "true" ownership of titles. Some buyers must form companies before being allowed to buy. And if a country is outside the EU, the interest rates on borrowing can be up to 7.5 per cent.

In reality, whether it is East or West, you pay your money and you take your choice. But you must also weigh up your risk.

Richard Donnell, head of research at property consultancy Savills, says the benefit of Western European investment is that although the market is drifting a little now, the long term trend is consistently upwards.

He says: "On a risk scale, investing in a known quantity in the UK or Western Europe is pretty low. In Eastern Europe the returns in the next year or two may be good but no one knows about re-selling, national economic performance or what happens in five years' time. That's a risk of nine or 10. High rewards of course - but more risk."

Contacts: John Howell & Co., 020-7420 0400; Newfound Property International, 020-8605 9520; Slovakia Investment Property 020-7152 4014; Someplace Else, 07734 808216; Savills, 020-7016 3740.

Churchill Properties Overseas, 01983 550400, Churchill Overseas

Bristol & Stone launch its Baltic Investment Fund

Bristol & Stone will be launching their first investment vehicle for Baltic real estate after the summer. The company will invest in Estonia, Latvia, and Lithuania, providing one of the first Western based, tax efficient vehicles through which to invest in real estate in the Baltics.

The unique features of the company are that it provides the most tax efficient vehicle through which to invest in Baltic real estate, and that it will spread the risk of investments across the three countries, and across the property sectors in those countries. This is a considerable innovation in the market, allowing foreign investors to benefit from the development of this new and fast-growing market without having to take the risk of investing directly into individual projects, or being tied to just one country or development company.

The company was founded by The Marquess of Bristol, Toby Stone, and Sacha Zackariya, all of whom have homes in Tallinn, and have considerable experience working in the Baltics over the last three years. Being based in Tallinn, the founders have been able to develop a local team that brings to investors the best contacts and local information, all of which is necessary to source and analyse investments, and to manage them effectively.

The company will invest primarily in real estate development, creating a unique bridge for foreign investors to access the high returns available from development projects but generally inaccessible to investors not firmly based in the region.

For further information visit Bristol and Stone

Buyer's Guide to Buying Property in Estonia

ProeprtyAuthors has made a guide to buying property in Estonia freely available on thier website. It covers everything including taxation laws, prices analysis and more.

Download it here : Buyers Guide to Property in Estonia

Long Term Potential of Property in Estonia

Estonia offers good opportunities for investors looking for possibilities outside the more established eastern and central European markets, such as the Czech Republic, Hungary and Poland.

While Estonian real estate – and the property investment market really only involves Tallinn, the capital – has shown some spectacular growth in the last few years – of up to 30 per cent per annum in the centre of the city – these kinds of gains have diminished for the time being. This year real estate prices look set to grow at a far more sedate pace: they may not even reach double digits.

But the attraction of Estonia is the terrific long-term potential it represents.
The attraction comes from the immediate allure of possible yields of up to 10 per cent, which is the level at which a property becomes cash positive right from the off - ie. it pays for itself. Plus, and more importantly in the long term, the attitude of the country towards the way it wants to develop. Estonia has its problems, certainly; most notable is the economic gulf between the more prosperous capital and the northeast of the country, which remains a black spot for investment and unemployment.

This area will certainly take some time to make the transition from heavy industry to the service and finance centre Estonia seems determined to become.

PropertySecrets.net