Property Sale Overseas: Estonia Property Buyers Guide
Despite the fact that freehold
ownership of real estate in Estonia has only been possible since the
end of Soviet occupation, the property buying process in Estonia is
well established, straightforward and inexpensive.
More positive features that help define the appeal of the investment
property market in Estonia are that mortgages are now available for
foreign buyers, and those who wish to own more than one property and
who purchase through an Estonian Ltd liability company can save
significant tax on profits and gains.
The majority of properties being sold to investors and foreign
buyers are brand new and off-plan apartments and houses. This is
because the old Soviet style housing requires significant investment
to bring it up to modern standards and those who actually wish to
live in cities like Tallinn want new, well constructed and finished
property.
Therefore a property investor’s target market of either tenants or
first time buyers are demanding properties that have been built
using the latest construction methods and also using modern
materials such as triple glazing and quality insulation, so it is
wise to buy new or off plan to have the accommodation units most in
demand and most likely to generate the best profit margins.
The construction period for off plan property in Estonia is usually
between 12 and 18 months which gives an investor plenty of time to
finance the purchase. This is just one benefit of buying investment
property preconstruction and an additional major benefit is that by
buying today you are securing your investment at today’s prices and
you will benefit from market expansion over the build duration and
be able to resell upon completion - if you so desire - and take all
that capital gain as profit.
To buy off plan property in Estonia it’s usual to pay a small
holding deposit for whichever unit the investor desires and then to
sign a reservation contract - this is like a preliminary contract as
it has the terms and conditions of the sale included in it. Once the
reservation agreement has been signed, between 10 and 20% of the
final purchase price has to be paid.
Some developers request small stage payments throughout the build
process with the majority payable upon completion; others simply
require the balance upon completion. Therefore because the majority
of the purchase price is paid on completion it is always in the
constructor’s best interests to finish on time and to complete the
property to the highest standards. Once a property has been
completed the buyer has a certain window of time in which he has to
inspect the property and when all is found to be in order the
purchase contract is signed.
This has to be signed in person in Estonia in front of a public
notary. As soon as it is signed the balance has to be transferred to
the property developer via the notary and within a month the stamp
duty has to be paid by the purchaser. The purchase agreement will
not be released to the property investor until the stamp duty has
been paid.
The stamp duty is a small sum of money and the only other additional
costs associated with buying investment property in Estonia are 0.5%
of the purchase price for the notary’s fees, 0.25% of the purchase
price for land registry fees and around GBP 70 - 100 for translation
fees so as you can see the property buying experience is relatively
cost effective!
Please note however that Estonia does has a land tax that it levies
annually, but it only ranges from 0.2% to 0.7% depending on where
exactly a property is located.
In terms of buying more than one investment property, many experts
advise the real estate investor to set up an Estonia Ltd liability
company which can be done easily for a fee of around GBP 750. By
owning properties through such a company structure the investor can
deduct expenses from any taxation liability and also an investor
need not pay any tax on profits and income until the company’s
profit is actually distributed. Even then the tax rate is currently
only 26%, so if an investor cleverly reinvests all profit back into
the company he need never pay any tax!
And finally, recent developments in the mortgage market in Estonia
mean that foreign buyers can now raise finance to purchase property
in Estonia and benefit from the country’s low interest rates. To be
eligible for a mortgage in Estonia an investor has to be able to
prove annual earnings in excess of GBP 20,000 and also be willing
and able to pay a deposit of between 20 and 40% of the property’s
value.
