The northernmost of the three Baltic states, Estonia is one of the most investor friendly of the latest countries to join the EU. The property market in Estonia has been surging in the last few years, with prices doubling in some cases since 2000, and especially sharp rises in the run-up to EU membership in 2004. With Estonia on track to adopt the euro in 2008, the country's property market looks like it's going from strength to strength.

Those wanting to invest in property in Estonia have a few options available, the most popular being to purchase an apartment or accommodation to let out – preferably as close to Tallinn's old town as you can afford and at a price that will allow you to achieve a decent rental income. The second option is to buy off-plan apartments and sell them on as they come close to completion for capital gain.

Why buy property in Estonia?
Property prices in Estonia saw more capital appreciation last year than those of any other European country, according to a survey by the Royal Institute of Chartered Surveyors (RICS). In 2005 growth in the Baltic hotspot stood out due to an all-round flourishing economy. Darren Goodson, author and publisher of 'How to profit from one of the biggest property booms in Eastern Europe', comments: "Estonia is a great investment because of 12 main fundamental factors that will ensure long-term sustainable growth. They include a booming tourist industry, foreign tourism has increased 40 per cent since 2004; A booming economy, increasing 9.8 per cent in 2005 with around 8 per cent forecasted for 2006; Wages are increasing on average by 11 per cent per year which inevitably pushes up house prices; and historically low interest rates starting from just 3.3 per cent." All this makes Estonia an exciting place for property investors.

Foreign property buyers in Estonia originally lured in by the arrival of Easyjet and EU accession are finding that the country has even more investment appeal. Mortgages are now available for foreign property buyers, and those who wish to own more  than  one  property  and who purchase through a limited company in Estonia can save significant tax on profits and gains.

Where to buy property in Estonia 
The capital city of Tallinn, where cobbled streets and medieval churches sit alongside the modern metropolis of buzzing bars and restaurants, is where interest is centred. The most expensive property is situated in the old town and city centre areas. Apartments in the old town are particularly popular and many of the older buildings have been converted into flats. "The best place in any capital city around the world is always in the city centre", confirms Goodson. "This is because it is where most office, retail and residential development is focused, and the very same thing is happening in Tallinn. This is also where business people and tourists prefer to stay – close to work, bars, restaurants and entertainment." Prices are still relatively low compared to other Western European cities. To give an example of property prices Goodson explains that there is one particular development for sale in the  Marine port area, about four minutes from the Old Town. Prices for one-bedroom apartments are around £85,000.

Property on the outskirts of the city is certainly worth exploring, and new beachfront developments just outside the city are likely to prove a good investment, while the 'summer capital' of Parnu is starting to market itself to overseas househunters.

"In terms of which type of property to buy, it's always simpler to buy off-plan or new build. Quality is higher and they are most in demand from domestic as well as foreign buyers", says Goodson.

Investment potential
"Estonia's investment potential is enormous. Foreign Direct Investment (FDI) increased over 100 per cent in 2005 compared to 2004. This makes Estonia's FDI investment per capita the highest in Eastern Europe", enthuses Goodson. "Estonia is destined to become the Hong Kong of Eastern Europe. Skyscrapers are being developed and there are many more in the pipeline."

Goodson explains that the reason for Estonia's attractiveness to foreign investors is partly because of its open economy, ranking 7th in the Economic Freedom Index 2005. Estonia welcomes foreign investment and with taxes dropping to 20 per cent by 2009, businesses from Finland, Sweden and even the US are all piling into this small but highly progressive country. With a highly educated workforce and a solid infrastructure, Estonia has placed itself on the map as a good place to do business.

The property market in Tallinn is established but still young. Elsewhere in Estonia international investor interest in property has yet to take off. There's undoubtedly potential along the beautiful coastline, but investment in areas outside of the capital is in its infancy. "The property market in Tallinn is growing rapidly but there is still plenty of potential", says Goodson. "As the country receives money from the EU structural funds (728 million euros per year until 2013) and FDI investment increases and foreign tourism booms, there has been a growing demand for new-build apartments." In 2005 3,000 apartments were brought to the market. In 2006 approximately 3,500 apartments will be built. The demand currently outweighs the supply, which is another reason why prices are increasing. "They simply cannot build them fast enough. This scenario is likely to continue", says Goodson.

Estonia will continue to increase in popularity over the next few years, in terms of tourism and people looking for a holiday home or overseas property. Estonia is attractive enough to broaden its base from an investor's target to that of the second-home owner. As Goodson says: "Estonia is not all just about making money from property. Tallinn is a beautiful city to visit. It has a wonderful Old Town, one of the oldest in Europe and is very picturesque both in the summer and winter seasons. The people are very nice and welcoming and, of course, it's cheap."

How to buy property in Estonia
1. Once you have decided which type of property you are looking for, you should begin searching for your ideal home. There are many agents promoting property in Tallinn, but the best are the more established ones. The Internet is the best starting place, however, most properties would have already been sold. The next best place is walking into an estate agent in Tallinn.

2. The first stage is a preliminary sales contract. This is a simple three-to-five page document confirming your commitment to buying a particular property. It is wise to have an English-speaking lawyer to assist you with the details of this contract, and use professional translators: as well as translating documents they can also attend meetings with you and if there is anything you should be made aware of they will notify you. At this stage, you will be required to put down a 5 per cent deposit. This will secure your property and it will ensure it will be taken off the market. You are not required to be in Tallinn at this stage.

3. After six to eight weeks you will be required to make your first visit to Tallinn to sign the first notary contract. At this stage a further 15–20 per cent will be required for the deposit. The balance of the purchase price can be financed locally from a bank in Estonia: 3.5–4.5 per cent is usual with an interest-only period for up to three years. This keeps monthly payment to a minimum; At this meeting will be your lawyer, translator, notary officer and deveoper.

4. During the period until completion, you should begin arranging your finance. A local mortgage can be obtained up to 12 months prior to completion. TallinnProperty.com can assist with this process. There are many ways in which money can be saved and this is included in its consultation and property finding service.

5. Once the property is completed, you will be required to attend a final notary meeting. At this stage your bank representative will be present, together with your lawyer, translator, notary official and the developer. Check all transactions with care. In Estonia the client, not the solicitor, organises the transfer of monies to the seller and the payment of the notary.

Estonia factfile:
Timezone: GMT+2
Exchange rate: GBP1= EEK22.66 (July06)
UK mortgage availability: Moderate
Deposit required: 15%
Agent's fees: 2–5% legal fees: 0.5%
Capital gains tax: 23%
Peak letting season: June to August
Average daily temps celcius (Jan–Dec):
-3, -3, 1, 7, 14, 19, 21, 20, 15, 9, 3, 0 (Tallinn)
Average property prices: 1-bed apart: £48,707; 2-bed apart: £81,239; 3-bed villa: £79,400

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Article pubished in August 2006