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