Four Reasons Real Estate Investors Flock To T …
Startups and large FinTech companies have sprung up in the region at a remarkable rate – Monese, Transferwise and Skype were all founded in Estonia, and it doesn’t stop there. There are many businesses growing in the area, and if you’re a real estate investor, here’s why you should consider investing.
Rapidly developing economies
For the fifth consecutive year since 2015, the total volume of commercial real estate investments in the Baltic States has exceeded one billion euros. This illustrates the region’s capacity for growth, despite the difficulties brought about by the Covid-19 pandemic.
After a strong 2019, all of the Baltic economies contracted due to the pandemic. In Latvia, GDP fell by 3.6% last year, in Estonia by 2.9% and in Lithuania by 1.3%. However, the three Baltic states are all in a much better position to cope with the economic downturn than they were during the global financial crisis of 2009.
Understandably, as small open economies, they are vulnerable to lower industrial production and the lack of tourism from Covid-19, but significant EU stimulus packages and a rapid easing of quarantine measures have somewhat reversed l impact of their declining GDP.
While retail was the sector most affected by the pandemic in 2020, it allowed the acceleration of the growing market share of e-commerce, which is another thriving industry in the region.
In Tallinn, Estonia, the average wage has almost tripled over the past 12 years, which is a great indicator of the purchasing power of the local population and hence the demand for quality real estate.
Tallinn and cities like Vilnius are experiencing waves of massive urbanization – their population has grown over the past five years by 6% and 3%, respectively, indicating a growing number of potential buyers in the coming years.
Another notable aspect is the construction of a high-speed rail link between the Estonian capital Tallinn and the Lithuanian border with Poland, “Rail Baltica”, which could increase the GDP of each of the three Baltic States from 0.2 to 0 , 6%. This will introduce greater freedom of movement between these countries and increase the accessibility of the region for foreign companies in Central and Western Europe.
Despite having large diasporas in each of the Baltic states, they all adopted approaches to encourage return migration – Estonia implemented an e-residency program which launched digital innovation, Lithuania used a dedicated program to return members of the diaspora and Latvia launched a program program in 2018 to help families returning from abroad to settle again. These policies all help maintain momentum for the Baltic states’ capitals.
Large investment offer
There are many options in terms of the types of properties to choose from in the Baltic States, and even rewards for investing in some cases – Latvia, for example, offers a European residence when you invest at least € 250,000 in it. the country’s real estate.
The development of the multi-apartment segment in Vilnius and Tallinn was huge in 2020, with the highest construction volumes since 2007. Between 2019-2020, in the cities of Tallinn and Vilnius, developers built 17 and 14 respectively. apartments for 1,000 inhabitants. For two-room apartments in Vilnius and Tallinn in 2020, the gross rental yield was 5.2% and 5.6%.
Apart from apartment developments, there is also a fair amount of office space available in the major cities of the Baltic States. In 2019, a total of 290,000 m² of office space was built in Tallinn, Riga and Vilnius, and construction shows no signs of stopping. A new workforce arriving in the cities, along with the region’s budding start-up infrastructure, is creating the perfect mix for a diverse real estate market.
Crowdfunding is gaining ground
For those looking for an attractive alternative form of investing, the Baltic States are home to some of the largest crowdfunding platforms in Europe – Profitus, Estateguru, Reinvest24 and Crowdestate.
In terms of number of projects funded, Estateguru outperforms all platforms in France, Spain and UK with 1,861. And to add to their reputation, their average rental yield is 11.28%.
Other innovative projects are also in the spotlight. For example, Lendsecured from Riga, Latvia is a company that invests in asset-backed loans, thus ensuring a passive income stream.
There is an old Lithuanian proverb: “It is difficult to teach a cow to climb a tree”, and this fits perfectly with the approach of the three Baltic States. Rather than trying to compete with Germany, France or Spain, they chose their own path to growth, and it paid off.
Having suffered from Soviet occupation, they turned the past around and grew into impressive economies with global success. Their capitals, in particular, have become innovative technology hubs with real estate startups and positive legislation to be appreciated.
* Jan Večerka is CEO of Brikkapp, a research and analysis platform for real estate crowdfunding