Soviet-built houses in Latvia account for more than 50% of transactions, but you have to pay three times more for communal services than in new projects. How else does the Latvian real estate market differ from the markets of other Baltic countries? What changes have occurred in the market recently? What is the situation with real estate prices at the moment? We learned about this and more from an interview with Roman Golubev, editor of the Latvian magazine “Square Meter” and the portal varianti.lv .
The Latvian market has never developed in stable conditions.
Features of the Latvian real estate market
— The real estate markets of the Baltic states vary significantly. One of the key features of the Latvian market in the past was the presence of serious and motivated foreign demand for residence permits, mainly from Russians. Belarusians were among the top five users of this product. Jurmala has been considered a place of attraction for Muscovites since Soviet times. This trend continued until the autumn of 2014, when major festivals like “New Wave”, “Jurmalina” and “The Vocal Kivin” took place here.
It should be noted that the Latvian market has never developed in calm and natural conditions. It was constantly influenced by the same additional demand, which then, for various, including geopolitical reasons, fell. For example, in 2004-2006, we experienced a boom in mortgage lending, which affected prices — they flew up. And already in 2007-2009, a price bubble collapsed in the Latvian market (which was associated with American derivatives and the creditworthiness of the local population), and prices in some segments deflated by almost 70% — although before that the Latvian market was considered the leader of the Baltic States. Estonians and Lithuanians have managed without such shocks.
In 2010, a program for granting foreigners a residence permit in exchange for buying real estate began to work in Latvia — demand has increased. In the autumn of 2014, the rules for obtaining it became stricter — this demand decreased significantly. Then covid, then February 2022. I have not seen long-term and long-term stability in the Latvian real estate market in the two decades during which I have been writing about it. Periods of calm were short-term in nature.
Housing stock and main market trends
— The main housing stock in Latvia is Soviet—built houses, which account for 55-60% of transactions. They remain the main object of purchase due to the financial capabilities of the buyers.
But in the last decade, there has also been a growing trend in interest in new buildings, especially from young people — if they meet the requirements of banks, they take out loans for 20-25 years and buy apartments in new projects.
One of such big trends now, if we are talking about the Riga Conglomeration, is the active development of the segment of private houses and apartment projects in settlements and towns around the capital of Latvia. This, of course, contributes to the development of infrastructure in these places. As for the center of Riga, the issue so far is that the authorities and developers are trying to regain interest in it. And it arises if developers offer a decent residential product at a reasonable price.
In addition, there is a consistently high demand for real estate in Jurmala. In recent years, against the background of current restrictions on buyers from In Russia, it is formed by local residents. Lithuanians and residents of other European countries also buy. However, there is no need to talk about the mass character of Europeans yet.
Mortgage rates in Latvia are among the highest in the EU.
Current market conditions and mortgage rates
— In the last two years, the market has seen negative price dynamics in both the secondary and primary markets. Many developers working in Riga’s neighborhoods now and then offer various bonuses to motivate buyers and smooth out the situation. For example, they offer to install a kitchen or provide a parking space at their own expense; someone guarantees to cover utility bills over the next couple of years. But you need to understand that such bonuses, in total, amount to no more than 5% of the price of the object.
But anyway, in 2023, the results of the Latvian real estate market were worse than in 2022 and 2021. Prices for serial apartments in Riga (as I said, this is the most frequent object of purchase) decreased by 7.2% last year.
To complete the picture, I would like to note that 2021 has become a record year for the last decade and a half in terms of the number of transactions, largely due to the pandemic – people have accumulated money, many were vacationing in Latvia, and mortgage rates were negative, which stimulated demand.
The market is currently going through a correction period, but I believe that in 2024 there will be stabilization with the possibility of small advantages. This should be facilitated by a reduction in the base rates of the European Central Bank, which will lead to a decrease in the Euribor rate. The vast majority of mortgage loans in Latvia are issued with a floating rate, which includes the interest of the bank itself and a six-month or annual Euribor.
And it is worth dwelling on this point separately, since in most republican centers, from 40% to just over 60% of purchases are made with the involvement of a mortgage.
So, mortgage rates in Latvia are among the highest in the European Union. This is due to the fact that banks are laying down the risks of the last crisis of 2007-2009. And if at the beginning of 2022, most mortgages for new housing were issued at a rate of 1.8-2.2% + zero Eiribor, now due to the rapid growth of Euribor, the total loan servicing rates have reached 6-6.5% per annum. And this led to a 25% increase in mortgage payments, which negatively affects demand.
It is expected that by the end of 2024, the Euribor rate will decrease to 2.5–3%, which should contribute to the revival of the market.
Average prices for Latvian real estate
— Now the average prices for Latvian real estate are as follows:
- Secondary housing in Riga neighborhoods: 40-60 thousand euros for a 2-room apartment in houses built during the Soviet period. The price depends on the series of the house and the quality of the repair.
- New buildings in Riga: 100-120 thousand euros for a 2-room apartment. In the residential areas of the capital, the price for a “square” is 2300-2600 thousand euros, and in the center — 3000 per square meter.
- Exclusive offers can be higher than 4,000 euros per square meter, but there are few such sales.
- In Jurmala, within the first line, a square meter costs about 3,000 euros, further from the sea — 2000-2500 euros/sq.m. Over the past year, only less than two dozen apartment transactions have been conducted in Jurmala at a price of 3,000 euros per sq.m. m and above.
Prices are significantly lower in the regions, depending on the state of the local economy. For example, in the city of Valmiera, where there are many industrial enterprises, prices per square meter of serial housing are only 15% lower than in Riga.
At the same time, in Daugavpils, things are not so good with jobs and there is an outflow of population, so you can find apartments for 300-400 euros per “square” (whereas in Riga, the average price of serial housing with old repairs, according to estimates from various companies, is 860-1000 euros).
It is important to note that in Latvia the energy efficiency of “panels” and new buildings is very different: in a three-room apartment in a Soviet building, heating bills in winter will be 2.5-3 times higher than in a similar apartment, but in a new project.
There is a shortage of investments in the market now.
Government support programs and investment attractiveness
— The main buyers in the Latvian real estate market are now local residents. For them, there are state programs of assistance in buying housing in the country. This, in particular, applies to families with children — an appropriate assistance program allows them to reduce the down payment when applying for a mortgage. The more children there are, the more the state is ready to provide guarantees for most of the loan. Young professionals can also use the bonus program when buying a home.
As for foreigners, previously a large role in attracting their interest in Latvian real estate was played by the program of obtaining a residence permit in exchange for investments. Over 13.5 years (from July 1, 2010 to the end of 2023), the total amount of investments under this program exceeded 1.62 billion euros — 83% of these funds were spent on the purchase of local real estate.
Now this program is formally working, but the activity is minimal. A moratorium has been imposed on Russians and Belarusians since 2022.
The negative impact on the real estate market in the center of Riga and Jurmala is caused by the fact that some foreign buyers, due to geopolitical reasons, are now unable to fully exercise their right to this property, that is, to use it. Accordingly, those who can, put it up for sale, most often at a discount for themselves, those who cannot — for rent, for someone it is still in a “frozen” state. It is absolutely clear that any additional volume in the absence of additional demand puts pressure on the price.
According to official data, in 2023, only 86 applications were submitted for a residence permit in exchange for investments in real estate in Latvia. The activity of international investors has also decreased. It is fair to say that there is now a certain shortage of investments in the Latvian real estate market, however, as in many European countries.
Today we live in a buyer’s market. This means that this is a good opportunity for a long—term investor. He has plenty to choose from, and he has the opportunity to try to dictate the price.
Renting out new residential real estate brings about 5% per annum. Higher returns are provided by the purchase and delivery of apartments of the Soviet housing stock, but it is necessary to take into account the low liquidity of such facilities: these buildings do not become better and newer, they will have to invest in them in the future; for this, residents of an apartment building must agree among themselves on its renovation and so on, which is not always possible to do.
Rental market in Latvia
— The Latvian rental market, for the most part, has returned to its pre-market indicators. Average rental rates at the moment:
- 2-room apartment in a new building: about 500 euros/month.
- 2-room apartment in a Soviet house: about 300 euros/month.
- Apartments in new projects in the center of Riga — 10-13 euros per sq. m. m per month.
- Luxury housing in Riga: 15-20 euros per sq. m. m per month. But sometimes there are higher rates.
However, as I have already said, with the same area, the cost of heating in new buildings due to their greater energy efficiency is about three times cheaper than in serial housing.
Interestingly, in recent months, Jurmala has seen a seasonal surge in rental demand, including from Israelis. This is due to the current situation in this region, as well as the fact that we have a much more comfortable summer — not as hot as in Israel.
In recent years, Italian, Spanish and French speeches have been increasingly heard in the main resort of Latvia. If we dream of relaxing in the warmth in the summer, then representatives of the southern part of these countries tend, on the contrary, to escape from the heat.
P.S. The Latvian real estate market is ending its period of turbulence, it is alive and continues to function. And if you are interested in it from the point of view of purchase, then today are pretty good times for this, if you do it with knowledgeable and experienced consultants.
Author
Yulia Yanukovych Editor-in-Chief
I am responsible for the work of the editorial office. I write expert interviews and guides.
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