Banks, Estonia, Financial Services, Interview, Investments, Real Estate

Riho Unt.

Unt said in an interview to ERR that real estate prices could start growing again, but only moderately in the second half of 2011.

"Just don't expect prices to grow 50 percent a year as we saw in 2005 and 2006. Considering that property prices are down 40 to 50 percent from the peak level, it would take at least ten years before they would be back in 2007 levels. And there would probably be a new economic crisis in the next ten years," said Unt.

According to the banker, the biggest mistake that homeowners can do is to treat home purchase as an investment.

"Real estate is an investment to people, who have a lot of free money, do not plan to sell it rapidly and don't expect higher yields than ten percent. This is why in its essence real estate is illiquid," said Unt.

Speaking of the economy in general, Unt said that interest rates that we had during the boom times will not return. Although the six-month Euribor recently exceeded one percent, current home loan borrowers should not fear that it will continue to climb rapidly in near future. "If you consider the weakness of the European economy, rapid growth of Euribor in the short term, is highly unlikely. Historically, Euribor has been between 4 and 6%, therefore 1% rate is definitely very low," he said.

Speaking of the Estonian economic problems, Unt noted that the high debt burden of private persons and the weakness of global financial markets were to major concerns.

"There are also disputes whether the economic crisis has a W or V shape," he added.

On the upside, Estonian exports continue to grow.

"This shows that Estonian companies have managed to beat tough competition on foreign markets. This is a good beginning and a sign that Estonia has adapted well to the crisis. So, the first optimism is somewhat justified," said the bank manager.

According to Unt, no-one should expect rapid changes.

"The value of capital has been re-assessed and money has become less available. The word "risk" has become more important and it means higher interest rates," the expert said.

Unt noted that, although the banks had already been made a scapegoat for the crisis, the public remains keen to see them suffer further.

"Every crisis is always followed by over-regulation. /.../ The public would probably love it, but the private sector not so much. It has not got too ugly in Estonia, but in Latvia and Lithuania we are seeing populist legislative initiatives with the sole objective of making banks suffer. /.../ However, it is a double-edged sword since successful restoration of the economy requires additional capital injections. This will not happen if the legislation keeps changing and foreign investors have no sense of security about the place," he said.

According to Unt, if he was to give advice to young people as to prospective subjects of study, he would say that not everyone must study economics, law or become politicians.

"The most important thing is to think what you would like to do. If you feel you could be a good kindergarten teacher, then go, study and become one. Another problem is that vocational education is not a priority. Everybody wants to have academic higher education, sit in nice offices and earn more than average wages. This is a good plan, but people are usually successful in areas where they have better skills," he added.