24.10.2024
The market value of an apartment is traditionally influenced mainly by its location and the number of square metres, but increasingly, energy efficiency, a proper heating and ventilation system, and a larger number of rooms are playing a role. LHV provides a fresh overview of which aspects are taken into account when assessing the value of an apartment.
Historically, the main factor affecting the price of real estate has been its location. ‘Over the past decade, understandings of sustainability, living conditions, and needs have somewhat changed, all of which affect the market value of apartments,’ Catlin Vatsel, the Head of Private Financing Department at LHV, says, drawing on the experience of the bank’s property valuers.
Buyers are willing to pay more for apartments in energy-efficient buildings, as they allow for savings on utility costs. ‘Previously, the condition of a building was assessed based on whether it had been renovated or not, but now the energy efficiency of the building and the monthly costs for heating and maintenance are often more important to buyers than the appearance of the apartment building,’ Vatsel says.
She advises that it is worth paying attention in the Building Register to whether the building’s energy label is based on calculations from the design or on the actual energy consumption of the building. ‘An energy label based on energy calculations generally does not take into account the actual habits of consumers, and the actual energy class may turn out to be lower than the calculated one,’ Vatsel notes.
According to her, buyers currently prefer apartments with district heating or their own heating systems due to fluctuations in heating prices, which are 5–10% more expensive than apartments with stove and electric heating. It is also important to have ventilation – living spaces with heat recovery ventilation are more expensive, as this allows for heat retention, reducing energy consumption and ensuring fresh air. In the case of apartment sizes, there is a scale effect whereby the price per square metre of a smaller apartment is higher than that of a larger one. For example, the price per square metre of a two-room apartment of 40 m2 is generally higher than the price per square metre of a two-room apartment of 50 m2.
However, a significant change has occurred concerning the number of rooms. ‘The most sought after are those apartments where there are more rooms within the same unit of space. In the early 2000s, apartments were built with large, spacious rooms, but now there is a greater appreciation for optimally sized living spaces and more rooms within the same area to create a separate home office or a room for each child,’ Vatsel says.
Due to the need for a larger number of rooms, changes to the layout of apartments in Soviet-era panel buildings have often been made, where utility systems are rearranged within the apartment and the kitchen is built into one wall of the living room, while the former kitchen is repurposed as a room. Such changes are also made, as a result of which the kitchen is combined with the living room or the bathroom is expanded at the expense of the corridor.
‘In the case of changes in the layout of the apartment, it is important that the reconstruction work is legalised and the documents in the registers are correct. In the case of demolishing unregulated walls, valuers often deduct the estimated cost of the work required for legalisation from the value of the property. The liquidity of apartments with unregulated reconstruction is also lower,’ Vatsel emphasises.
In the assessment of apartments, the prices of apartments in similar buildings are taken as a general basis for determining market value. For example, if the property being valued is located in a five-floor panel building, it will not be compared to an apartment in a nine-floor or Stalinist building, as their prices may differ significantly. ‘For example, there is a clear trend in the market that apartments located in highly valued Stalinist residential buildings from the Soviet era are sought after, as they have high ceilings and thick brick walls,’ Vatsel adds.
The price also depends on which floor the apartment is located. Developers traditionally price new development apartments mostly by floor – the higher the apartment is located, the higher the price. However, purchase decisions do not indicate that buyers are willing to pay more for an apartment located on a higher floor. ‘For example, if there was previously a rule that ground floor apartments were less valued due to poorer views, higher street noise, and lower security, now in the suburbs, ground floor apartments with large terraces are often priced higher, as children can go straight out to play in the yard and parents do not have to go up and down stairs,’ Vatsel points out. The presence of a balcony, loggia or terrace will definitely increase the value of apartments. Rooftop terraces are particularly valued.
In older buildings without lifts, the fifth-floor apartments are generally less sought after, despite the better view, as getting home requires good physical fitness. ‘However, the rule applies that an exclusive forest, sea or city view adds value to the apartment, and apartments located on higher floors in tower buildings cost about 5–10% more,’ Vatsel notes.
The presence of a designated parking space and storage area is a factor that increases market value. However, as is the case with reconstruction work, it is important that the use of the parking space and storage area is legally certain – it is examined whether they belong to the apartment ownership under a special use order, use order, or whether they can be separately transferred. A parking space under the apartment association agreement may be an advantage for the buyer, but it does not affect the market value, as non-notarial agreements are easily amended.
LHV Pank offers its home loan clients the valuation of real estate on favourable terms. Read more: lhv.ee/kodulaen.
LHV Group is the largest domestic financial group and capital provider in Estonia. The LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. The Group employs over 1,100 people. As at the end of August, LHV’s banking services are used by 441,000 clients, the pension funds managed by LHV have 118,000 active clients, and LHV Kindlustus protects a total of 168,000 clients. LHV Bank Limited, a subsidiary of the Group, holds a banking licence in the United Kingdom and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.
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