Buying a Home in Estonia - Price to Rent Ratio

If you want to buy a home in Estonia, after reading the quick Estonian economy review and about Price to Income Ratio you can evaluate if the real state market is over or under valuated using the Price to Rent ratio.

Price to Rent Ratio

When evaluating if a home is affordable, one measurement frequently used is the Price to Rent ratio, defined by average house price divided by the average yearly rent price. Historically in America, this ratio fluctuates between 15 and 25, where a value below 15 means it's cheaper to buy than rent, and higher values can indicate an overpriced house (or a bubble). The European Union Housing Price Index shows an all time low in Housing Price to Rent ratio, and the Global Property Guide European Price to Rent ratio shows how each country compares.

Estonian Price to Rent ratio

Let's see how Estonian Real State market fare's using this simple index.

Tallinn Price to Rent ratio

Since Tallinn is a special case in Estonia, let's take a look at it separately.

Big Picture

Even though the values above don't seem so good, Estonia has almost the lowest of European Price to Rent ratio. However, this lists compare upscale  houses with "Average per square meter prices in US$/€ of 120-sq. m. apartments located in the center of the most important city of each country".

Using Numbeo World Price to Rate map we can see that Estonia has a high but not so high ratio, compared to other world capitals, but I'm not sure how this values are calculated, so take it with a grain of salt.

What do you think, would you still buy a home in Estonia? Share it in the comments.

Comparing house prices - Estonia and Europe

After reading the previous post about Housing prices in Estonia, you might be thinking that maybe Estonian prices are not that bad compared to other European countries. Let's try to do a rough comparison of Housing prices in Europe and see how does Estonia ranks.

It's good to note that we may be comparing oranges and apples (and there are lies, Lies and Statistics), so take this results with a grain of skepticism.

Global Property Guide has several very good articles on Estonian Housing market, and compared to Europe, Estonian Square Meter Prices are quite low (last 6th position). Also comparing House Price to Income Ratio to Europe, Estonia is on the middle (below top 15). However, this lists compare upscale  houses with "Average per square metre prices in US$/€ of 120-sq. m. apartments located in the centre of the most important city of each country".

Numbeo has some nice interactive maps of World Price to Income Ratio but I don't yet know how this numbers are calculated.

We can get more detailed analysis on a country per country basis, to get more insight. For instance, here's a recent article on Swiss home prices to income ratio.

What do you think: Does the world market affects Estonian housing prices? Postimees reports that foreigners almost one quarter of Estonian real estate transactions in 2012, although we have to remember that a big percentage of local residents holds a foreign or grey passport. Share it in the comments!

Should you buy a home in Estonia?

After living in Estonia for a while, you start considering if it's worth to stop renting and finally buy your own home (specially now that interest rates are so low). After reading our quick Estonian economy review, here's some data to consider before buying a flat, apartment or house in Estonia:

Price to Income ratio

One important way to measure affordable housing  is Price to Income ratio - the number of years of average income necessary to buy a median value home. This value differs in each country: while in US the typical median home cost 2.6 times as much as the median annual income, in Australia a value below 4 is considered affordable.

Estonian Price to Income ratio

To calculate an estimated Estonian Price to Income ratio, lets assume a 50m² flat and use the average gross wages and average price per square meter for 2010, 2011 and 2012  from Statistics Estonia:

Estonian Price to Income ratio
Year	Price/m2	Salary	P2I
2010	640€	792€	3.37
2011	706€	839€	3.51
2012	760€	887€	3.57

Although this seems reasonable, Estonia has one particularity: half of GDP and population is located in the capital region. This can be seen in the average gross wages per region where the income of Valga (lowest income) county employees accounts for 74% of the Harju (highest income) county.

Tallinn Price to Income ratio

To calculate an estimated Tallinn Price to Income ratio, assuming the same 50m² flat and using average gross wages and average price per square meter for 2010, 2011 and 2012 in Tallinn:

Tallinn Price to Income ratio
Year	Price/m2	Salary	P2I
2010	€840	€847	4.13
2011	€1037	€893	4.84
2012	€1135	€946	5.00

The Price to Income ratio implies that housing is expensive in Estonia, particularly in Tallinn, and is getting more expensive every year, as Estonian dwelling prices increased 20% since 2010.

Big Picture

Before we rush to conclusions we should consider the European Housing statistics, that overcrowding and affordability is a pressing issue in Europe, and that Estonia had the largest decrease in overcrowding rate over the past years. It may be that Estonia is just paying the price of a much needed housing growth?

For a deeper analysis, see "Before and after the boom: changes in the Estonian housing market" Doctoral thesis by Angelika Kallakmaa-Kapsta defended on April 4, 2013 at the Tallinn University of Technology:

This study investigates housing market developments from three main aspects – market 
analysis, housing affordability, and quality of housing. (...) If a person with an average monthly income cannot afford to pay for an average home (which in the Estonian case is a flat) there is an affordability problem.

So, what do you think: Would you still buy a house in Estonia? Did you find any mistake in the calculations? Share it in the comments!

Estonian Economy - from Independence to Euro

If you are interested in Estonia for work, investment, or just as a tourist, it may help to read a quick summary of recent events in Estonian economy, so you don't get surprised by local prices when arriving in Tallinn.

Estonia adopted the Estonian kroon  in June 1992, replacing the Soviet ruble as national currency after it's re-independence on August 1991. During the transition to a free-market economy, inflation was high as the country economy had fast growing GDP rates (Eurostat dashboard).

Confidence in Estonian economy increased when Estonia joined the European Union and NATO in 2004, and entered the Schengen area in 2007, leading to a housing bubble that burst in 2007, aggravated by the 2008 global financial crisis.

High unemployment rates and a huge drop in GDP followed in 2007 and 2008, but with strict government austerity measures and a pledge to join the Eurozone (finally achieved in 2011), the country economy started rebounding in 2009 and is growing ever since (Real GDP per capita - Eurostat), although still with inflation among the highest in European Union.

To fight economical recession, the European Central Bank decided in July 2012 to cut the main interest rates from 1%  to 0.75% and in May 2013 to 0.5% per year (ECB interest rates), creating a huge incentive for private lending (specially for mortgages) in Estonia.

How these recent economical factors will affect Estonia is not yet known, but some visible trends are the growth of Estonian average wage and GDP per capita in contrast with population decline aggravated by Estonian emigration to other European countries (based on 2011 Census) and the concentration of almost one third of the population and more than half of GDP in the capital area (Harju county).

What do you think the future holds for Estonian economy? Did this post miss any important point? Let me know in the comments.

Tourism in Estonia - How to Shop Tax Free

If you are traveler residing in a non-EU country, you can get back the VAT (18% in Estonia) payed when you bring your purchased items back home. When buying something big, like electronics, this can be a big discount!

First, if you want the money back, make sure you buy your item in a store with the "TAX FREE" sign, and ask for the shop to fill a Refund Cheque! (You might need to show your passport for filling the form)

Second, when leaving Estonia, or leaving EU, show your purchases, receipt and passport to a Customs Office and get your refund Cheque stamped. (Can be done before or after check-in in airports).

Last, show your Stamped Refund Cheque and passport to a Refund Office before leaving EU (usually every international airport has one) and ask for the credit in your credit card or the refund in cash! (If you want cash, you can get the amount converted to the local currency, or in Euros).

Easy! But there's some tricks. You have 3 months after the purchase to ask for the refund, and there's a minimum purchase value for asking the tax refund. For Estonia, this value is 2000 eek (around 180 U$D).

Have you ever got your tax money back? Was it easy? Add your info in the comments!

Working in Estonia - Tax Declaration

Estonia is famous for E-Government, flat income tax rate, decreasing since 2004 (21% in 2008). From February 15 till March 31, Estonians fill their Tax Report (Online at Maksu- ja Tolliamet - Estonian Tax and Customs Board),  in order to receive their tax refund (within 5 working days!). 
Unfortunately, the Online Form is available only in Estonian or Russian, but with some easy steps, you also can make your Tax Declaration!

1. Login using your ID-Card/Phone ID-Card or Bank account.
   
2. Click on "Tuludeklaratsioonid", then "2008".
   
3. Review your personal data, typing the current address at "Postiaadress". Click "Salvesta", then click "Edasi".
   
4. Verify your income and tax data, and add your deductions. Usually, all the information is filled and correct, it means you can simply click on "Edasi".
   
5. Review all the entered information. Everything should be fine, just press "Edasi". You can go to previous pages pressing "Tagasi".
   
6. The total of tax refund you will receive will be written, and you can see the refund calculation by pressing "Vaata arvutuskäiku". Here you verify your banking data, where your refund will be deposited. There will be 2 checkboxes, leave them blank. Click on "Edasi".
   
7. Last page, where you review Bank data, and clicking on "Kinnita" and then OK, you finished your Tax Declaration. Now just wait for the Tax Refund money! Easy, isn't?
   

IMPORTANT DATES

6 February – you can view the pre-populated income tax return in the e-Tax Board. Check the data and amend or update them if necessary.

16 February – submission of pre-populated electronic income tax returns from the website of the Tax and Customs Board starts.

26 February – refunding overpaid income tax on the basis of the electronically submitted income tax returns starts.

31 March – final deadline for submission of income tax returns. You can submit the tax return electronically or on paper.

1 July or 1 October – the final deadline for returning overpaid income tax if the tax return is subject to additional inspection. The Tax Board will inform you about the need for additional inspection from the day following the day you submitted your tax return.

If you want, you can review or re-enter the Tax Form, on the same website. Did yo have any problems, any doubts? Add your comments!

Working in Estonia - Searching for a job

So, you are a skilled professional and decided to work in Estonia. Where to start?

First, add you curriculum to the main Estonian job seeking websites:

CV Online
A very good database of jobs of Estonia and the Baltics. You can add your CV and search for opportunities in English, as well as Estonian and Russian (for free). Plus, they have a very interesting feature for registered users: Salary Wizard! You select some options to describe your job position, put your current salary, and compare with others in the same categories anonymously, so you can see if you are making less than others in the same field!

CV Keskus
A good job database for Estonia, with plenty information in English. CV Market started in year 2000 as a e-recruitment company in Estonia. Part of CV Market group, offers jobs also in Latvia, Lithuania, Czech, Netherlands, Hungary and Poland.

Some other options (harder, though) are the Labour Market Board, and to search in Estonian newspapers; Eesti Päevaleht group has the Hyppelaud, Eesti Ekspress has the EkspressJob. Be aware, it requires Estonian language.

Eures
Finally, the European Job Mobility Portal offers a high level database in all European languages, and its worth the visit. Maybe you find some good opportunities in Estonia there. As described in the website, "Job vacancies in 31 European countries, CVs from interested candidates, what you need to know about living and working abroad and much more brought to you by the EURES network."

You already know about the average salaries (bruto), but how much will you make? Estonia has a fixed income tax rate (21% in 2008), and you can calculate your neto salary, with all tax discounts in this Palga kalkulaator. Just type your bruto salary and click on 'Arvuta'. They explain in details your salary (in Estonian), how much goes for the government, etc.

Working in Estonia - Average Wage

With the economical growth of Estonia since the joining of E.U., the average wages in Estonia had grown rapidly, and since the end of 2007, passed the barrier of 12 000 eek (bruto). For more detailed information, see Eesti Statistika average wage report for last quarter of 2007.

In the first quarter of 2008, the average bruto salary per month is 12 337 eek (790 Euros), or 74,74 eek per hour. But the average salaries vary much, starting from 7 894 eek (505 Euros, for hotel workers) till 31 252 eek (2000 Euros, for finance brokers). See the statistics for the average salary per month and hour for the first quarter of 2008.

Besides the difference between job types, there's a big difference also regarding where are you working in Estonia. The Estonian Parliament explains it better, in a document released in March 2008.
For instance, the average salary for a worker in Tallinn is 2000 eek bigger then a worker in Tartu, the second biggest city of Estonia. See more in the table below:

Keskmine brutopalk 2007 IV kv maakondade lõikes (krooni)
Average Wage (bruto) for the last quarter of 2007 by Regions (in eek)

Harju maakond	13804
..Tallinn	13997
Hiiu maakond	9700
Ida-Viru maakond	9327
Jõgeva maakond	10268
Järva maakond	10855
Lääne maakond	9577
Lääne-Viru maakond	9723
Põlva maakond	9601
Pärnu maakond	10352
Rapla maakond	10169
Saare maakond	10947
Tartu maakond	12213
Valga maakond	8988
Viljandi maakond	10401
Võru maakond	9490
Eesti keskmine	12 270

As you can see, there are many details you have to consider while thinking about salaries in Estonia. Besides the language, the location and kind of job can mean a big difference in your monthly payment.

Working in Estonia - Minimum Wage

If you are coming to Estonia for work, it's good to know how much you can earn. Estonia has a minimum wage defined by law since 2002. This year the minimum wage for a full-time job (40h/week) is is 4 350 eek (278 euros). You can see the evolution of this value (bruto, in euros) in comparison with other European countries:

	2002	2003	2004	2005	2006	2007	2008
Estonia	118.0	138.0	159.0	172.0	191.7	230.1	278.0
Latvia	107.0	116.0	121.0	116.0	129.2	172.0	229.4
Lithuania	120.0	125.0	125.0	145.0	159.3	173.8	231.7
Romania	62.0	73.0	69.0	72.0	90.2	114.3	141.4
Bulgaria	51.0	56.0	61.0	77.0	81.8	92.0	112.5
Belgium	1163.0	1163.0	1186.0	1210.0	1234.0	1259.0	1309.6

Statistics Estonia (Eesti Statistika) is a government agency at the area of administration of the Ministry of Finance. To see other European countries minimum wages, check Minimun Wages in Europe page in their web site, or the Eurostat web page.