Estonian Developers Diverge as Housing Market Recovers

Estonia’s housing market is gradually emerging from its downturn as prices rise, mortgage lending expands and the stock of completed unsold apartments declines. Developer earnings remain uneven. Merko Ehitus stayed highly profitable after an exceptional year, Arco Vara and Bonava ended 2025 with losses, while Liven reported a first-half net loss in 2026 because of dividend tax and share-offering costs even as its sales contracts nearly doubled. ERR’s review also showed that Reterra, Kaamos and Endover remained profitable.

Merko Remains Profitable After an Exceptional Year

Merko Ehitus generated revenue of €310.9 million in 2025, down 42.3% from €539 million a year earlier. Net profit fell 38.3%, from €64.7 million to €39.9 million. Its net margin nevertheless increased from 12% to 12.8% because profit declined more slowly than turnover.

Merko Ehitus’s report attributed the decline to the unusually high comparison base created by major contracts completed in 2024. Construction-services revenue almost halved to €237.6 million in 2025, while property-development revenue rose 13.8% to €73.4 million. Development increased its share of group revenue from 12% to 23.6%.

The company handed over 358 apartments, compared with 323 in 2024. Revenue from apartments developed for sale increased from €58.9 million to €67.8 million. Merko also launched construction of 894 apartments, more than three times the previous year’s total, with 26% covered by presale agreements.

Its secured construction order book rose 37.1% to €466.9 million, excluding the group’s own residential developments. Large Lithuanian defence contracts signed at the start of 2026 subsequently lifted unfinished external work to more than €800 million.

Cash and cash equivalents fell to €41.4 million from €91.9 million, but net debt remained negative at minus €8.3 million. This means cash and deposits continued to exceed interest-bearing liabilities. Operating cash flow was negative by €1.7 million, largely because more capital was tied up in apartments under construction.

Arco Vara Expands Its Portfolio and Debt

Arco Vara’s 2025 revenue increased 2.8% to €7.685 million from €7.477 million. Operating profit rose to €195,000 from €69,000, but €563,000 in net finance costs and €111,000 in tax expenses resulted in a €479,000 net loss. The company lost €624,000 in 2024.

Arco Vara’s annual report linked the loss to weaker-than-expected fourth-quarter sales and a limited number of completed units. The company recorded sales agreements for 48 apartments, including 28 preliminary agreements and 20 final property-transfer contracts. In 2024, it sold 30 apartments and three commercial units.

Completed inventory declined to eight apartments and one commercial unit at the end of 2025, from 28 apartments and one commercial property a year earlier. The lower stock reduces the immediate burden of unsold completed homes, although future earnings remain dependent on the completion of new developments.

The company’s largest acquisition was the Luther Quarter in central Tallinn. The 15-property site cost €35 million and has planning capacity for around 95,000 square metres of gross development, including 18,500 square metres of commercial space and 33,000 square metres of net residential area. The transaction was funded with Arco Vara shares, cash and modified loan obligations assumed from LHV Pank.

Arco Vara also issued €15 million of bonds carrying an 8.8% coupon and maturing in September 2028. Net debt rose from €14.7 million to approximately €37.7 million, while the weighted average interest rate on interest-bearing liabilities reached 8.9%. Part of the interest was capitalised into development inventories rather than immediately expensed.

Liven Sales Rise Despite a First-Half Net Loss

Liven generated €49.3 million in revenue in 2025, up 80.8% from €27.3 million. Net profit increased from €558,000 to €5.414 million after a large volume of completed homes was transferred to buyers late in the year.

Liven’s half-year report showed revenue of €11.439 million for January through June 2026, up 22.8% from €9.319 million. Profit before tax was €186,000, compared with €296,000 a year earlier. After dividend-related income tax, the company recorded a €198,000 net loss, against a €268,000 profit in the first half of 2025.

No new buildings were completed during the second quarter and only 12 previously completed homes were handed over. Quarterly revenue was €4.503 million, the pre-tax loss was €234,000 and the net loss reached €618,000. The result included €384,000 of dividend tax and approximately €90,000 of costs related to the public share offering.

Sales activity strengthened. Liven signed 111 contracts during the first six months, almost twice the 56 recorded a year earlier. The total revenue value of new contracts reached €26.2 million, including €21.3 million classified as presales.

The presale portfolio reached €48.6 million and covered 171 contracts at the end of June. Projects scheduled for completion in 2026 accounted for €39.8 million of that amount. Together with revenue already recognised, nearly 90% of Liven’s €59 million annual revenue target had been earned or secured through contracts. Most handovers and profit recognition are expected in the fourth quarter.

Loan liabilities increased to €57.34 million by the end of the first half, including €16.56 million of bank construction loans. Cash stood at €10.03 million. Management expects borrowing to peak before project completion and then decline as apartments are transferred and construction loans are repaid.

Bonava Posts a Loss as Other Developers Stay Profitable

Bonava Estonia sold 120 apartments in 2025, but revenue declined 20% to €16 million and the company recorded a €1.47 million net loss. The figures show that higher market activity does not automatically produce profit when handover volumes and project costs remain unfavourable.

Reterra Estate reported €21.6 million in revenue and €2.58 million in profit. Kaamos Kinnisvara earned €9.26 million on revenue of €66.8 million after selling 183 apartments in Tallinn and Riga. Endover reported €14.3 million in revenue and more than €9 million in profit.

The figures should not be treated as a uniform profitability ranking. The published summary does not provide identical reporting perimeters, consolidation methods, project calendars or profit breakdowns for each developer. A full assessment would require the underlying financial statements.

Estonian Housing Prices Continue to Rise

Statistics Estonia said the dwelling price index increased 3.4% from the previous quarter and 5.9% year on year in the first quarter of 2026. Apartment prices rose 6.9%, while house prices increased 3.9%. Purchases increased outside Tallinn but declined slightly in the capital.

The index is based on completed transactions rather than listing prices. Changes in the mix of properties sold can therefore affect the result, particularly when a larger proportion of new or expensive homes changes hands.

For the whole of 2025, the dwelling price index increased by an average of 5.2%. Apartment prices rose 5% in Tallinn, 4.1% in areas bordering the capital and in Tartu and Pärnu, and 6.9% elsewhere in Estonia. The monetary value of both new-build and existing-home transactions increased from 2024.

Tallinn’s Completed Housing Inventory Declines

Citify figures included in Liven’s reporting show that an average of 2,958 new apartments were marketed in Tallinn during the second quarter of 2026, nearly 8% more than a year earlier. The average asking price reached €5,227 per square metre, up 4.4% year on year and 1.9% from the previous quarter. These were advertised prices rather than necessarily final transaction values.

Developers signed 379 Tallinn new-home contracts during the quarter, 3.8% more than a year earlier but 14.8% fewer than in the first quarter. First-half sales rose 13.7% to 824 homes. In surrounding municipalities, 455 apartments and terraced houses were sold, an increase of 26.7%.

Completed unsold inventory declined to 797 apartments from 1,008 a year earlier. Its share of the total offer fell to 27.6% from 36.3%. The reduction eases immediate pressure on developers, although close to 3,000 new homes still being marketed means competition between projects remains high.

Mortgage Lending Supports Housing Demand

Eesti Pank reported that the combined portfolio of corporate and household loans grew by more than 8% year on year to €30 billion by the end of June 2026. The housing-loan portfolio expanded by almost 10%, while corporate lending rose 8%, with real estate and construction among the main drivers.

Borrowing costs remain a constraint. The six-month Euribor, commonly used as the variable component of Estonian mortgages, reached 2.57% during the second quarter, compared with 2.475% at the end of March and 2.05% in June 2025. Higher benchmark rates increase monthly mortgage payments and developers’ financing costs.

Construction costs are also rising again. The construction price index increased 1.9% from the previous quarter and 3.1% year on year in the second quarter of 2026. Material costs rose 3.9% and accounted for 76% of the annual index increase. Machinery costs increased 1.8% and labour costs rose 1.9%.

The market is therefore being pulled in opposing directions. Contract volumes and mortgage lending are expanding, while completed inventory is declining. At the same time, material prices, financing expenses and uneven project handovers are preventing the recovery from producing consistent profit across the sector.

As International Investment experts report, higher prices and stronger sales do not yet demonstrate a complete recovery in Estonia’s property market. Developer results depend on legal handover dates, cash flow, construction debt and refinancing costs as much as they depend on demand. Merko enters the new cycle with a large order book and substantial capital, Arco Vara is accepting greater leverage to expand, and Liven remains dependent on a concentration of project completions late in the year. Buyers and investors should focus on a developer’s ability to finish projects on time and repay project debt rather than on a single quarter’s reported profit.