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