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Estonian Housing Market - Before Euro Adoption

Author

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  • Angelika Kallakmaa
  • Ene Kolbre

Abstract

After a rapid period of changes in the Estonian economy the situation will start to stabilise and it seems to be realistic, that Estonia is able to meet all the Maastricht criteria for the adoption of the euro. Weak domestic demand due to the decrease in incomes and worsening situation in the labour market is the main source of negative impact on the economy, but it can be balanced by the restored growth in Estonian exports in the second half of 2010. The rapid growth period from 2000 to 2007 was mostly driven by real estate and construction sector. The loan portfolio of individuals and businesses in local banks started to decrease since the end of 2008 and the trend will probably continue. The high debt burden has weakened householdsí financial position. The mortgage credit turnover has significantly decreased. Property prices in Estoniaís residential real estate market have returned to 2004-2005 levels. Suspected adoption of the euro will increase the credibility of Estonia and it will also lay a foundation for the growth of foreign investment activity to Estonia. The first part of this article analyses the financial behaviour of households that has become notably more conservative over the past year and discusses about the procyclicality effect in the Estonian banking sector. During an economic boom financial sector inclines to strengthen the impact of a business cycle through intensifying lending activity and vice versa. Second part analyses the situation in the housing market in Estonia and changes and dynamics of the housing sector.

Suggested Citation

  • Angelika Kallakmaa & Ene Kolbre, 2010. "Estonian Housing Market - Before Euro Adoption," ERES eres2010_187, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2010_187
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2010-187
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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