Opinion: Olga Rudzika “What tendencies will we see in the Latvian real estate market this year”
February 7, 2022
Olga Rudzika is the Managing Director of Pro Kapital Latvia
For most people, real estate is not only the biggest purchase of their lives but also the most valuable asset they own. It is also attractive, largely understandable (tangible!) And the stable way to invest. Working with large-scale real estate development projects in the Baltic States since the 1990s, we have quite sufficient experience and knowledge to understand which factors will have the greatest impact on the Latvian housing market this year.
Last year, especially at the end of the year, the number of transactions in the real estate market in Latvia increased, although at the beginning of the year it showed slower dynamics compared to the other Baltic countries. This can be explained by the fact that uncertainty about the future and the sharp rise in the prices of building materials forced market participants – real estate sellers, developers, buyers and also banks – to remain cautious. Several market participants decided to take a wait-and-see attitude in anticipation of falling construction material prices. It did not take long and already in the second half of the year the situation stabilized, and we saw a rapid increase in transactions.
Housing purchases will be concentrated in Riga
For the past two years, the real estate market has been analyzed through the prism of a pandemic. The experience of the first lockdown encouraged families, who were already considering moving out of town, to act. This increase in demand, also raised competition and house prices outside Riga, especially in Pieriga and the largest cities of Vidzeme. The traditional suburban area expanded to such regional centers as Valmiera, Cēsis and Sigulda.
However, watching the experience of other countries and returning to the “normal” pace of life, we see that business activity in the capital is still gaining momentum. In fact, it is already visible. According to the Latvian Open Data Portal, the number of transactions made in December was unusually high. Demand for short-term rental apartments on the Airbnb and Booking.com platforms, which have shifted to long-term rental apartments because of the pandemic, is likely to pick up slowly as tourist flows gradually recover.
Riga still has the lowest real estate prices among the Baltic capitals
In Tallinn and Vilnius, prices in 2021 have grown much faster than in Riga. Our neighbors even joke that a smart Estonian should invest in the Latvian real estate market now. The main indicator for price growth forecasts is the secondary housing market price index, or the average price of apartments in standard-type houses, which in 2021 has reached only half of the figures before the global economic crisis. While this index was 1700 euros per m2 in 2007, by 2021 the index was only 890 euros per m2. In addition, Rigans anticipate that their income will continue to grow and the burden of previously issued mortgages will account for an ever-smaller share of their expenses.
Daugava as a catalyst for further development
Historically, a situation has developed in Riga that is generally untypical for most European capitals. Namely, the banks of the Daugava are relatively underdeveloped. The former industrial sites have lost their economic importance and are now available for housing. Other real estate developers have also started to show interest in the development of the banks of the Daugava, so in the coming years, we will be able to see high-value-added coastal buildings.
Buyers are becoming more demanding
As experience and living standards grow, people are increasingly demanding more “living” space. This expectation goes beyond the apartment area to the common areas and the backyard area. This factor will only become more important and will increasingly influence the choice of real estate. We can already see that buyers are interested in shared gyms, recreation areas, saunas, as well as community gardens, and luggage and bicycle storage rooms. In short, a high-quality offer of additional functions and options outside the walls of the apartment will become increasingly important.
Experience shows that the more the development of the real estate market is hampered by external factors, the faster it grows thereafter. Given that this year we will also see faster construction of new projects and the demand for new housing will remain at the highest level of the last decade, we will also expect an increase in prices. Therefore, for those who are thinking about buying their own home, waiting for the right moment, we recommend acting now instead of when there’s a justified need and opportunity.