I start with basic calculation as in 2022 and build up to 2023 so for the verdict scroll down
Buying a property in Tallinn:
- Home Price: Let’s assume the average home price in Tallinn is €200,000.
- Down Payment: A common down payment is around 20%, so that would be €40,000.
- Mortgage Rate: Assuming a mortgage rate of 2% (roughly the rate in 2022 in Estonia), you would finance €160,000.
- Monthly Mortgage Payment: This could be around €680 per month (excluding property taxes and insurance).
- Property Taxes and Insurance:
- There is no property tax in Estonia there is only land tax and the land under your primary residence is exempt of taxes (https://www.emta.ee/en/private-client/taxes-and-payment/other-taxes/land-tax#tax-liability)
- Property insurance will be around 200 EUR a year so 17 EUR/month
Renting a property in Tallinn:
- Monthly Rent: Assume the average rent for a similar property is €800 per month.
- Security Deposit: Often, renters pay a security deposit equal to one month’s rent, so €800.
Comparison Renting VS Buying:
- Upfront Costs:
- Buying: €40,000 (down payment) + closing costs (around 600 EUR).
- Renting: €800 (security deposit).
- Monthly Costs:
- Buying: €697 (mortgage + property taxes + insurance).
- Renting: €800.
Considerations:
- Equity Buildup:
- Buying allows you to build equity over time, whereas renting does not offer this benefit.
- Flexibility:
- Renting provides more flexibility if you anticipate moving in the near future.
- Market Appreciation:
- If the property appreciates in value, buying can provide a financial return.
- Maintenance Costs:
- Homeownership may involve additional costs for maintenance and repairs.
This simplified example illustrates the importance of considering upfront costs, monthly expenses, and long-term goals.
Buying vs renting in Tallinn & Estonia in 2023
The current interest rate in November 2023 is 6 % (Estonia Bank Lending Rate was reported at 6.390 % pa in Aug 2023) so the mortgage monthly payment for the same loan with 6.3 % interest will be 1 060 EUR
The interest rates on the deposits have also increased and you can get 4.5 % easily so by paying 40 000 EUR down on your mortgage you have an opportunity cost of 1800 EUR/year which is 150 EUR/month so your buying costs are actually 1060 +150=1210 EUR/month
In 2023 the rents have decreased 10-20% compared to 2022 so renting the same apartment will cost 640 EUR/month so the cost to buy a property in Tallinn with a mortgage is almost double than to rent in 2023
The verdict is that buying a property in Tallinn, Estonia with a mortgage in 2023 at the current prices does not make sense and you will be better off renting. If you don’t need a mortgage this is a good opportunity for you to negotiate and get some very unique properties.
Consultation with Estonian real estate professionals and financial advisors is highly recommended for accurate and personalized advice.
Author: Georgi Zanev
