SEB home purchasing power index: new apartments in Tallinn more accessible than in the other Baltic capitals

SEB PankAnalysis by SEB has revealed that 2015 saw the accessibility of new apartments improve in both Riga and Vilnius, yet decrease in Tallinn. Despite the decline, new apartments are more affordable in Estonia than in the capitals of Latvia or Lithuania.

In Q4 2015, a resident of Riga on an average income could afford a new apartment of 27.9 square metres, 3.3 square metres more than in Q4 2014. A resident of Vilnius making an average wage could purchase a new apartment of 29.6 square metres, 0.4 metres more than in 2014.

In Tallinn, however, the home purchasing power index fell by 0.9 square metres, to 35.7 square metres, year on year. In spite of the decline, a resident of the capital on an average income could, without taking on any excessive risks or loan commitments, buy a standard apartment that is 7.8 square metres larger than that of a resident of Riga and 6.1 square metres larger than that of a resident of Vilnius.

“In the Lithuanian capital, the home purchasing power index improved thanks to a rise in the incomes of the residents of Vilnius, the growth of which outpaced the prices of new apartments last year. In Riga, the increase in the index was affected by the decline in the average price of new homes. In Tallinn, by contrast, prices of new homes outpaced real wages, reducing their accessibility there slightly,” commented Tõnu Sepp, Director of the Retail Banking Division.

Apartments in dormitory districts becoming more affordable

With respect to purchases of apartments in dormitory districts, the SEB home purchasing power index increased in all three countries over the 12 month period. Apartment prices on the secondary market rose in Estonia, Latvia and Lithuania alike, being outpaced, however, by growth in incomes. In Q4 2015, a resident of Riga making an average wage could purchase a standard apartment of 53.5 square metres in a dormitory district, whereas residents of Tallinn and Vilnius could purchase homes of 44 and 41.9 square metres, respectively.

“Growth in the home purchasing power index correlates strongly with average home loan interest rates, which remain at very low levels in all three countries. “The lowest interest rate for new home loans in Q4 of last year was recorded in Lithuania: 2.03 per cent; it was 2.65 per cent in Estonia and 3.48 per cent in Latvia,” Sepp added.

*The SEB home purchasing power index indicates, in square metres, the size of a flat that a resident with average income is able to purchase using a loan without taking an overly high risk (with a loan expiry date of 25 years, down payment of 20 per cent, and loan payment does not exceed 30 per cent of the borrower’s income). The index takes into consideration four factors that influence the home loan market: property price (average standard apartment in dormitory suburbs), income, inflation, and the interest rate.

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