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Expert insight: 4 most significant changes in the rental market


Expert insight: 4 most significant changes in the rental market

Several changes in the rental market have been carried over from last year to this one. Unfortunately, these are of a negative nature, with the main driver being economic conditions. Alain Aun, CEO and co-founder of Rendin, gives us an insight into what to know about today's rental market.

1. Tenants' payment defaults: signs point to increase

"Already last autumn, we saw in our practice how tenants' financial situation has deteriorated, which increased the risk that they might get into difficulties with paying rent and utility bills. Landlords also became concerned, as confirmed by a Norstat survey, who saw an increased likelihood of payment problems due to the rising cost of living," says Alain Aun of Rendin, a platform for signing secure rental agreements.

Around 3,000 people a month want to rent a home through Rendin. First, they must pass a background check when applying for an apartment. It's usually an automatic process, but an algorithm will direct some people to an additional review for various reasons.

"Increasingly, our background check algorithm is highlighting a discrepancy between the public default data of tenant candidates and their real financial capability. It means many people's income and monthly commitments don't allow them to meet the costs of the rental home they want," explains Rendin's CEO. "Six months ago, a third of people didn't pass an additional check, but now this has risen to 40%," he says.

"Our data tells us that the number of people in payment arrears is clearly on the rise. But, at the same time, the full picture still needs to be reflected in public payment default registers. This makes it particularly difficult for independent landlords and real estate agents to obtain information and assess tenants' risks."

2. Source of risk: rental prices in combination with inflation

Demand for rental apartments has faded somewhat, and price growth has stopped. Overall, there's been a 15% correction in the downward trend of average rental prices compared to the peak period at the end of summer/beginning of autumn last year.

"However, prices are still high, add to this general inflation which affects almost all areas and has a strong impact on people's spending. All this together remains a source of risk," Aun points to the realisation of payment defaults.

The head of Rendin adds that the risk is amplified by landlords' expectations of high rental prices. "Some of them are willing to fish for individual candidates who would agree to sign an agreement at above market rents. But, at the same time, there is a lack of awareness that an advertisement with almost no candidates is a clear sign that something might be wrong," he explains.

"In the market, we have seen several cases where a tenant with financial problems applies for an overpriced apartment and prior they've got rejected by other landlords. To cover the high starting costs (first month's rent, deposit, agent/contract fees, etc.), the tenant takes out a quick loan for this purpose," Alain Aun describes.

3. Euribor: affecting tenants as well as landlords

The rise in Euribor over the past year has put landlords in a difficult position as their rental property loan payments have jumped to a whole new level. However, what's less talked about is the impact of Euribor on tenants. "Many of them have a contractual obligation to cover the monthly repayments of loans taken out by the apartment association, which are part of the utility bills."

Aun points out that the bulk of the repayments on recent loans, in particular, can be made up of bank interest, the amounts of which are now significantly higher than the tenant had anticipated when the agreement was signed.

4. War refugees: difficulties finding a place to live

Many Ukrainians who have escaped from war to Estonia have yet to find an affordable rental home where they can stay for a more extended period. The main obstacle is too low income.

"They haven't been able to find a suitable or sufficiently paying job. So for some, social support is the only source of income," says Aun, adding that rent and utility costs are higher than their finances enable in both scenarios.

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