Does Bolivian hummingbird’s wing flapping affect the real estate market in the Baltics?

May 08, 2019

Does Bolivian hummingbird’s wing flapping affect the real estate market in the Baltics?

Probably not, however, there are many other factors that do. For instance, for better or worse, the real estate market is fundamentally tied to the strength of the labour market. If the unemployment rate is low, more people are entering the market and/or salaries are increasing, then demand in all segments of the real estate market is growing. Let’s remind us all some of the main ties that occur between the labour market, real estate and standard of living.

Office market sees this impact automatically – new employees need to work somewhere and if the home office is not an option, then need for good office space increases. Furthermore, fully renovated and new spaces are becoming more desirable as employees are expecting a modern working environment from employers. We see that as a common hygiene standard, where no discount can be made if you want to build long-term relationships with your employees. It’s a well-known fact that nobody in the startup world wants to work in an office where there is no kitchen and a pool table.

Although e-commerce is growing, shopping in physical locations remains the main way of consuming products and services. In some particular way, we love to touch the products before we buy them. Shopping gives us freedom and reduces also work-related stress. Consequently, shopping centres have remained a central part of the retail world and consumers are looking at them more like entertainment centres, where they can spend their time and hard-earned salaries with value. You probably noticed our newest mall when arriving through the airport to Tallinn and of course the gigantic observation wheel on top of it. Based on that we can definitely conclude that probability that in the future we have centres where there are two roof wheels is increasing.

 Photo by Beau Swierstra on Unsplash

Products arrive in shopping centres from logistics centres and warehouses. This commercial real estate segment is the last of which experiences growth when demand from the consumers (working people) increases. Areas, where these buildings are common, are usually near the borders of cities. When you arrived in Tallinn from Tartu or Pärnu, then before entering the city you probably noticed lots of rectangular prism-shaped buildings. Just to let you know, that all of the food and drinks served in Latitude59 are stored in those buildings.

In general, employment is typically a key determinant to owning a home. This seems like a basic statement, but is often forgotten in an environment where interest rates are historically at their lowest levels and mortgage loans’ credit flow remains strong. Increased creation of jobs is giving young workers the confidence to move out from their rental apartments and workers who already own a home to seek more comfortable and better premises for a living (outdoor jacuzzi is a must). When they approach banks for financing, then besides collateral, repayment ability is assessed, and this is done most part based on their salaries. You can have a pretty face, but to our knowledge currently, the banks still don’t take this into account when analyzing loan applications.

First-time entrants to the labour market can’t apply for a loan and therefore they look towards the rental market. Time to rent out an apartment in a specific area increases the market values of the properties and attracts also more investors. For instance, in Estonia even Bolt and Uber drivers are investing in buy-to-rent properties. Financially healthy tenants are important and again this is mostly affected by their status and income from the labour market. The residential rental market is positively affected also by the migration of workers. They usually have short-term employment contracts, living permit and therefore are not eligible for mortgage loans. They are significant influencers of the rental market and demand usually premises with furniture.

So, we can conclude that you and your small salary are more important than hummingbird’s wings. Working people are an essential part of the real estate ecosystem and as described labour market affects all of the well-known segments of the real estate market. Real estate market’s blood is capital and most of it comes from the labour market. Consequently, workers and their income shape the real estate market more than we can imagine.

If you are not 100% sure what to do with your income, then stop by the EstateGuru booth at Latitude and have a chat with us. We might steer on you the right path to increasing your wealth.

Story by Andres Luts
 Baltic Risk Manager
 Estateguru.co

 

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