Estonia’s real estate experiences a slight slowdown and layoffs are on the radar for some sectors, but others remain active, with a promising prognosis for the next year’s small economic growth of 0,7% according to the European Commission, explains Pohla & Hallmagi Partner Juri Ploom.
“Being not far from Ukraine and sharing a joint border with Russia, a lot is happening in Estonia all the time,” Ploom begins. “We have had around 70,000 refugees from Ukraine, which is the biggest proportion per capita after Poland. What we have been seeing in the past few months is that foreign investors have become more careful and a few transactions have been put on hold.” According to him, banks are also extremely careful about giving out loans, and interest rates have increased. “The risks have gone higher as well – we used to have low government debt, but nowadays, the interest rate on governmental borrowing has gone up close to 4%,” he notes. “These are the result of the war and our dependence on Russian oil and gas, even though we’ve been very successful in terms of cutting those links recently.”
Ploom notes that, in general, the market has been doing well. “Our figures are better than ever and sectors such as renewable energy and IP/IT are very active,” he points out. “Estonia has been a bit slow on renewables in the past ten years, but now due to the need to restructure our energy market, there is heavy pressure primarily from Scandinavian countries to start new onshore and offshore wind renewable projects. There are many funds coming from the EU, mainly focused on the eastern part of Estonia, previous mining and industrial area where many standby projects have resumed.”
At the same time, Ploom highlights that there’s a lot of instability in the market. “Whatever is certain today, might change tomorrow,” he says. “We have had some success stories, but recently one of such technology companies, Pipedrive, announced layoffs – about 150 people were fired. There are layoffs in the production sector as well, such as in the case of wood and furniture companies. On top of that, recently, a new regulation was introduced affecting crypto-companies and we will probably see its effect soon.”
“There is a relative decrease in terms of real estate transactions,” Ploom notes. “The real estate market is slowing down, as a result of high-interest rates. In the past, the interest rate amounted to 2%, but now the number is around 5% altogether, and consequently, there are fewer buyers on the market.”
Other than that, Ploom notes that during the past 30 years of independence, Estonia faced several different major crises, which partially prepared the country for what is to come. “There are some expected insolvency and restructuring cases, but it will probably not be a huge number,” he says. “Still, the current situation is not as dire – what we have is rather a slowdown more than a crisis. It seems that Estonia solved the energy problem for the coming winter on a large scale and we expect a small economic growth rate for the next year. Obviously, many people lost their jobs, but once spring comes and energy becomes less of a factor, the situation will likely change.”