Do you own an empty Tallinn apartment ? Sell it, and buy Arco Vara, Eesti Ehitus or Merko Ehitus shares !
Estonian residential real estate has lost its attraction as an investment object. As long as prices moved in one direction, there were people willing to hold apartments for investment purposes, but since rental yields are low, that market is now suitable only for pure speculators.
For cultural reasons, Estonians do not want to rent their homes, but to own them. Therefore apartments trade at low yield levels. On top of that, the rental market is dominated by private individuals who own one or very few apartments, and probably in some cases forget to pay taxes on their rent income, thus distorting the market. These factors preclude large-scale long-term investments into Estonian residential real estate.
So, whereas for instance in Sweden some private investors have become billionaires by renting out apartments, this will seemingly not happen in Estonia. In my view, the idea of private ownership of homes is generally preferable to renting. Apartment dwellers care more when they are also the owners. However, also a functioning rental market is an indispensible part of an efficient market economy. And pension funds or other larger financial investors arguably have fewer investment opportunities in Estonia.
Thus I see no rationale for private individuals to own empty or low-yielding apartments in Tallinn for investment purposes. Let us consider a standard apartment at the value of EEK 2 mln. Probably the annual rental yield today would be some EEK 100 thousand or 5 pct.
With the same EEK 2 mln that investor may today acquire: 200 thousand Arco Vara shares, or 40 thousand Eesti Ehitus shares, or 15 thousand Merko Ehitus shares. Incidentally, these shareholdings would make the investor the 20th to 50th largest shareholder in the mentioned companies. The market prices of these shares have fallen by 50-70 percent during the last 12 months. Of course their future financial return will be subject to a variety of risks, but judging by history, probably by far outpacing that of the apartment investment.
So, even though apartment prices have fallen, rental yields will probably stay low. And right now there are opportunities, at the price of only one standard apartment, to grab proportionally large stock positions in Estonia's major construction and real estate companies. I think that investment choice should be quite easy. So, rather than owning real estate, own the producers of real estate !
And share them with Toomas ....