REAL ESTATE QUALITY ASSESSMENT PROBLEMS IN THE ESTONIAN REAL ESTATE MARKET

Abstract

During the boom years in the Estonian real estate market, real estate developers, buyers and appraisers did not pay much attention to the real estate quality and its assessment because demand in the market was considerably higher than supply due to the favourable conditions of finance, and all objects, notwithstanding their quality, were sold or rented out. When the market declined and reached a depression it turned out that unsold or not rented out were real estate objects which had low quality. In expectation of a new real estate market rise real estate quality and assessment related problems have arisen in the Estonian real estate market. The new Estonian real estate quality rating system, which is designated for valuation of real estate, but is not a mandatory part of an valuation report, embraces improved real estate for residential, office, business, storage and production use. The quality grade in this system characterises competitiveness of the object to be attractive to a similar type of investors or tenants. The quality grade of a real estate object is determined on the basis of the earning capacity of this object considering the sustainability of this object, i.e. the principles of sustainable development and usage have to be taken into consideration in the assessment of every factor. The earning capacity is assessed on the basis of three characteristics: location and use of the plot; quality of construction and real estate management. This research seeks to identify whether and to what extent real estate market participants (investors, developers and consumers) attach importance to real estate quality assessment, what is the hierarchy of the indicators preferred by them and how does the new valuersi quality rating system meet their needs.