Rising Estonian property values must be stemmed to protect the overall economy, according to central bank governor Ardo Hansson. Speaking to Bloomberg, he explained that accelerating house prices and wage growth could threaten the position of the newest euro-zone member. Conditions could fast resemble those that led to the market crash if action is not taken soon.
"We see the trends that are starting now in terms of wage growth and property prices starting to pick up again," Mr Hansson stated to the news portal. "If it were to continue now for several quarters, several years, you could get into a situation where some of the imbalances start reappearing." Currently, Estonia's $22 billion (£13 billion) economy has yet to return to output levels enjoyed before the 20 per cent contraction in 2008. At the time of the crash, conditions were worsened by the end of the property boom, which saw house prices in Tallinn double in three years.
Swift price rises seem to be happening again too. In the second quarter of the year, Estonia posted the second largest growth figure in Europe. Between April and June values rose by 8.1 per cent, according to figures from Eurostat. Quarter-on-quarter, this equates to 3.7 per cent growth.
Overseas buyers have a role to play in placing Estonian house prices on an upwards trajectory. Taavi Reidmets, head of housing at Ober-Haus Kinnisvara, noted that international buyers are showing considerable interest in the market, particularly apartments. Russian and Scandinavian buyers are at the forefront of activity, and Narva-Joesuu is proving popular with Russians.
Twenty-three apartments were sold in the area between June and July alone, but property prices remain out of the reach of locals. Values range from between €80,000 and €500,000 for a seaside apartment, but as prices rise nationwide, more properties will find themselves near the top end of the scale. Borrowing costs are also expected to lower in the future, which will enable more buyers to enter the market and drive values even more skywards.