Market research of the real estate of Latvia
Thinking of investment into the real estate, it is necessary to study the market of the country to be sure that purchase of housing will bring you the desired income. Purchase of housing in Latvia is especially attractive now, in communication by adoption of the new law allowing to receive the residence permit for 5 years for purchase of the real estate of the determined cost.
Besides, in this article we will in detail tell about all trends in the real estate market of the country from the moment of crisis till today. So you will be able independently to analyse a situation and to decide what type of housing and in what region to you it is necessary, and AWAY REALTY will help to pick up to you the suitable house in Latvia.
Market research of the real estate in Latvia within a year till April, 2014 showed that for this period, taking into account inflation, according to the different companies of the price of apartments in Riga grew by 4.4-5.5%. In the last quarter the prices of apartments in Riga rose by 2.3%.
New apartments in the Old city of Riga and in the downtown vary from €1.700 to €4.000 for square meter. At the same time the cost of exclusive projects can reach €4.500 - €5.000 for square meter.
Low interest rates, attractive income, high growth
The gross income which can be received from lease is very attractive. Besides, in Latvia the highest was recorded in Europe economic growth for the last three years. Therefore indicators in the country very good.
At the same time, though real estate prices grow in the country, mortgage lending is reduced by housing here.
The total amount of the credits for purchase of housing dropped by 5.7% to €4.9 billion one year prior to April, 2014. So in the country still there is an excess property – heritage after years of a boom.
The average interest rate for the housing credit of euro was about 3.53% in March, 2014.
The economy of Latvia grows the third year in a row after recession of 2008-2010. GDP growth in 2013 was at the good level of 4.1%, is only a little lower in 2012 GDP growth to year (5.2%) and in 2011 (5.3%).
It is expected that economic growth will continue in 2014. The European Commission predicts growth by 4.2% in 2014 – the highest rate in the European Union. The Ministry of Economic Development of Latvia predicts that GDP growth will be 4.5% on the basis of permanent export and some other forms of priming of economy.
Having purchased the residential real estate in Latvia, the foreigner receives the residence permit in the country for a period of 5 years. Following conditions:
1. The cost of the transaction shall exceed €142.000 in Riga and Jurmala or €71.000 in other regions till September 1, 2014. Since September 1, 2014 the minimum cost is €250.000.
2. Upon purchase the real estate only a non-cash can be used.
3. The buyer shall not have tax debts in Latvia.
In more detail about it you can read according to the reference.
Housing boom and recession in Latvia
Speculation in the real estate played a big role in a housing boom of the country. Researches show that speculators purchased about 15-30% of all objects during a boom of the housing prices.
According to statistics, real estate prices doubled, trebled or were even quadrupled from 2004 to 2007:
1. On average in the country of the housing price grew by 311% (228% in real terms) from €210 for square meter in 2004 up to €529 for square meter in 2007.
2. The average prices in Riga increased by 267% (193% taking into account inflation) from €325 to €1.193 for the same period.
3. In all regions the considerable gain of the prices was recorded. The average prices of property grew by 300% from 2004 to 2007 in regions of Vidzeme, Courland and Zegmale.
4. The smallest average gain of the prices occurred in Latgale – 211% for the same period.
However, after several years of steady growth, the real estate market of Latvia began to be weakened in 2007:
1. In 2007 the prices of apartments dropped by 5.01% in comparison with 2006.
2. In 2008 the prices of apartments sharply dropped by 30.47%.
3. In 2009 the prices fell by 42.02%.
Then in 2010 delay falling of the prices was noticed, the housing prices grew only by 2.06%, partially because of more tough credit policy. The prices grew in 2013 again, and the gain made 4.15%.
According to reports of the agencies, foreigners, generally Russian, began to buy up grounds and the real estate at a construction stage. Volumes of transactions steadily grow, since the end of 2009.
Lease revenues vary from moderated to high
According to data for 2013, handing over apartments in Riga, it was possible to gain income from 5.23% to 6.40%. Apartments (45-75 sq.m), more modest by the size, brought higher income: 6.30-6.40%. And big apartments (200 sq.m) brought more modest income at the level of 5.23%.
Leasing of apartments in the suburb of Riga brought even bigger income in comparison with the downtown. Apartments of 45 sq.m could bring income to 8.16%, and big apartments about 120 sq.m – 5.66%.
In 2009 the market got oversaturated, and abrupt recession in the housing prices forced to lease those objects which were assumed for sale.
In 2010 the market jumped up again when the average rental rate grew by 20%, thanks to the growing demand which arose because of improvement of economy of Latvia. Then the average growth of the prices of lease in 2011 and 10-15% a gain in 2012 as demand for lease continued to increase, despite lower cost of apartments followed 15%.
In 2013 the average rent grew by 10-15%, thanks to demand which continues to grow. Lease of 1-2-roomed apartments in the downtown varies from €300 to €450 in a month. Apartments with 2-3 rooms (50-100 sq.m) which are generally rented by foreigners would cost €500 - €1.500 in a month.
When will the surplus of the real estate disappear?
Despite excellent income, in the country there is a surplus of housing. The offer of new apartments in Riga grew more than by 1,100 objects in 2013, thus, about 3,000 new apartments arose in the market of the capital for the last 4 years.
About 1,900 built apartments which are not sold only were available in the market at the beginning of 2014 that is 300 objects more, than in previous year.
However, according to indicators, "absorption of surplus" doubled practically in 2013 in comparison with 2012. The number of transactions of purchase and sale grew by 20% in 2013.
Since July, 2010 (since the beginning of new policy of obtaining the residence permit for purchase of the real estate) most of foreigners who purchased housing in Latvia, were Russians (they prefer Riga and Jurmala). But for the first six months in 2013 107 buyers of housing were Chinese, and, thus, Chinese became the most frequent investors, along with Russians.
Mortgage market decreases because of toughening of standards on the credits
The reason of surplus of the offer, despite good profitability of housing, can partially be the fact that mortgage lending is reduced, having decreased by 5.1% in 2013 in comparison with 2012 because of very severe credit conditions.
During a boom of the housing prices, fast expansion of mortgage market of Latvia was a key factor which was moved by low interest rates and cooperation of foreign banks. The growth rate was tremendous – the housing credits grew almost for 90% every year from 2004 to 2006. Despite early signals of future falling in 2007, mortgage market nevertheless grew by 44% for that year.
The total mortgage debt grew from 2% of GDP in 2000 to 33.75% of GDP in 2007.
Mortgage market clogged in 2007 when growth of a debt fell up to 7.3% in 2008. At the moment mortgage market of Latvia returned only to an indicator to 21.7% of GDP. The economy improved since 2010 on 2012, but the quantity of the credits continued to decrease, having decreased by 4.5% in 2010 and almost for 11% in 2012. The sharp slowdown in 2012 was caused by toughening of the credit conditions imposed by banks.
In some credit institutions it happened partially because of higher cost of means and balance sheet restrictions and partially because of the weak competition in this segment.
Prospects
Since crisis in the country passed 6 years, and now country situation looks very much hopefully. In January, 2014 Latvia passed to euro that in the country is considered economic success.
Acceptance of currency, most likely, will improve trade due to cost reduction and also will probably help economic and financial integration between Latvia and other members of the European currency Union.
In Latvia the new prime minister - Laymdota Strauyuma. She is the first woman in the head of the government of Latvia. It is often compared to Angela Merkel, and she also relies on the 4-party coalition consisting of the conservative Uniform party, National Alliance (the right wing), center-right party of Reforms and the centrist Union Green and Fermerov.
Recovery of the economy of Latvia in 2011-2014 was generally caused by export and the improving business and investment climate. Export grew by 33% in 2011. The IMF recognized the Latvian efforts on expense reduction as model for the countries of the eurozone with debts.
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