The Times 29th April 2005
ASK DARREN GOODSON to speculate on the next big thing in overseas property investment and he will put his money on Tallinn. So certain is the London businessman of a long-term property boom that he is liquidating a substantial part of his UK buy-to-let portfolio to invest in the Estonian capital. And he has convinced his brother, business partner and two other friends to buy there too.
They are not alone: when Ryanair and easyJet added the Baltic states to their schedules canny investors took note. Fly-to-let investors have already made their presence felt in Prague, and budget airlines, whether serving the tourist or business market, now routinely feature in lists of key economic indicators drawn up by property investors evaluating distant lands.
Estonia’s medieval capital is regularly promoted by the travel industry as the new Prague, but whether this tiny city of just 411,000 is the new property hot spot remains to be seen. Darren, who runs a printing and publishing business in the East End, has no doubts: he has bought three new one-bed flats just outside Tallinn’s Old Town and plans to sell three of his eight London properties to buy another ten flats in the city in the next 12 to 18 months.
An amateur property investor even before he left home in Redbridge, Essex, at 21, Darren, now 32, spotted Tallinn’s potential when he visited an old schoolfriend working in the country’s telecommunications industry three years ago. His friend had fallen for an Estonian girl, but Darren was in the mood for finance, not romance. “At the time Estonia was on the verge of joining the EU, and by speaking to locals I found out prices were going up by 10 to 15 per cent.”
Over the next 12 months he did his homework and he liked what he saw. Estonia’s GDP grew by 4.7 per cent last year, and the country is attracting large amounts of foreign investment, including substantial European Union grants for infrastructure projects. More than 250 subsidiaries of international companies have been established here since 2003, many from Sweden and Finland (Helsinki is just 1½ hours away by hydrofoil).
Much of the housing stock is poor, Soviet-era concrete blocks. With wages and living standards rising, the pan-Baltic estate agent Ober-Haus predicts that demand will easily outstrip the supply of new-build properties.
A key indicator for Darren was the construction index, which rose by 6.2 per cent last year. “That’s a good indication of a rising property market,” he says. “Those building costs have to be passed on to the consumer, which means the price of new houses will increase, at least in line with the construction index. This in turn should push up second-hand prices.”
Darren also discovered that Estonian banks are willing to lend up to 95 per cent of a property’s value, provided that monthly payments are not more than 40 per cent of take-home pay.
Darren, who lives in London Docklands, says his investment decisions are not emotional, but he is an avowed fan of Tallinn. “I liked it from the very first time I went there,” he admits. “It’s a beautiful place. They’re very nice, friendly people, and they’ve got a good service culture. I like the village atmosphere of a small city — you get a feeling of importance there, whereas in London you can feel like a lost soul.”
Wisely, Darren’s choice of property reflects his experience in London. He reserved a one-bed apartment in a new building in the fast- growing commercial and residential ring just outside the old city walls. Darren paid £45,000 for his initial 50 sq m flat in 2003 and £50,000 for a further two. His brother Gary paid £61,000 for a similar-sized apartment a few months ago.
Darren put down a 25 per cent deposit and took out an interest-only mortgage with an Estonian bank for the balance. He spent £6,000 kitting out and furnishing each flat, which he hopes to let for £350 a month. After deducting bills of £500, mortgage repayments of £1,200 and agency fees, he believes he will be left with an annual profit of £1,700 on the two flats he hopes to let; he is keeping the first for his own use.
Including capital growth of 10 per cent a year, Darren estimates that he will see a 35 per cent a year return on his investment, but he admits that there is some risk: his figures depend on letting the flats for at least 11 months of the year and his main rental market will be foreign workers or Estonians working for foreign companies. Agents suggest that this is achievable. He says:
“I’ve been through ten years of property growth in the UK and I see exactly the same thing happening in Estonia. When I bought my first buy-to-let in the UK, friends said, ‘You’re mad, what if you can’t rent it out?’ But if you want to be successful, you’ve got to take risks.”