Latvia
Last Updated:
Jun 03, 2010
The average price of apartments in Latvia’s capital Riga rose during the year to April 2010 by 3.5% (6.4% in real terms) to €592 per square metres (sq. m.), according to Arco Real Estate, a leading Baltic real estate developer. House prices are now up 21.6% (21.4% in real terms) from the bottom of the slump in September 2009. The average price of apartments is nevertheless still down 63.5% (69.4% in real terms) from the peak of €1,620 per sq. m. in June 2007. Prices were also, by concidence, up 3.5% (2.6% in real terms) over the latest month.
Quarterly figures from Ober-Haus, one of the Baltics’ largest real estate agencies, confirms an increase. However Ober-Haus has more modest estimates. Having stagnated since the second half of 2009, Ober-Haus believes the average price of new flats in Riga’s centre rose 4% to €1,509 per sq. m. Existing flat prices also rose 3.5% to €1,450 per sq. m.
The price increases may seem surprising. Latvia’s economy contracted by 18% in 2009, in the EU’s worst recession. Latvian unemployment at 20% in Q4 2009 is the among highest in the EU.
The price increases, however, reflect the confidence expressed by monetary and fiscal authorities that the Latvian economy is now on the mend. Although they expect GDP will contract by 3% in 2010, the authorities expect 3.5% growth in 2011.
Foreigners can freely buy, develop and dispose of movable property (buildings) in Latvia, provided that the property was acquired separately from the land on which it stands. Direct acquisition of land by foreigners is subject to permission of the local municipality.
Quarterly figures from Ober-Haus, one of the Baltics’ largest real estate agencies, confirms an increase. However Ober-Haus has more modest estimates. Having stagnated since the second half of 2009, Ober-Haus believes the average price of new flats in Riga’s centre rose 4% to €1,509 per sq. m. Existing flat prices also rose 3.5% to €1,450 per sq. m.
The price increases may seem surprising. Latvia’s economy contracted by 18% in 2009, in the EU’s worst recession. Latvian unemployment at 20% in Q4 2009 is the among highest in the EU.
The price increases, however, reflect the confidence expressed by monetary and fiscal authorities that the Latvian economy is now on the mend. Although they expect GDP will contract by 3% in 2010, the authorities expect 3.5% growth in 2011.
Foreigners can freely buy, develop and dispose of movable property (buildings) in Latvia, provided that the property was acquired separately from the land on which it stands. Direct acquisition of land by foreigners is subject to permission of the local municipality.
Analysis of Latvia Residential Property Market »
RENTAL YIELDS
Last Updated: Aug 18, 2009
The crisis continues in Latvia, and there is no sign of recovery yet. From the viewpoint of property investment, the bare facts are depressing. Gross rental yields on apartments in the centre of Riga are quite poor, ranging from 3.71% to 4.48%. It would be hard to be enthusiastic about property investment at these levels.
Rental yields are, however, considerably better on suburban apartments. The contrast is clear: suburban apartment yields average 5.47%, while city centre apartment yields average 4.05%.
People often write in to ask, when will buying investment property in the Baltics be attractive again? We can only say, this is not the stuff of which property recoveries are made. Not yet, anyway. So hold off on property investment. The usual pattern is that economic activity begins to rise, leading to rising rents, and then property investors begin to regain confidence. Happy days for property investment are a long way off in the Baltics.
Rental yields are, however, considerably better on suburban apartments. The contrast is clear: suburban apartment yields average 5.47%, while city centre apartment yields average 4.05%.
People often write in to ask, when will buying investment property in the Baltics be attractive again? We can only say, this is not the stuff of which property recoveries are made. Not yet, anyway. So hold off on property investment. The usual pattern is that economic activity begins to rise, leading to rising rents, and then property investors begin to regain confidence. Happy days for property investment are a long way off in the Baltics.
TAXES AND COSTS
Last Updated: Jan 22, 2010
Effective Tax Rate on Rental Income |
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| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 0% | 0% | 0% |
| Click here to see a worked example | |||
Source:
Disclaimer |
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Rental Income: Rental income earned by non-resident property owners are taxed at the standard income tax rate of 26%. Property taxes and depreciation expenses are deductible.
Capital Gains: Capital gains are taxed at a special rate of 15%.
Inheritance: There is no inheritance tax.
Residents: Residents are taxed on their worldwide income at a flat rate of 26%.
Capital Gains: Capital gains are taxed at a special rate of 15%.
Inheritance: There is no inheritance tax.
Residents: Residents are taxed on their worldwide income at a flat rate of 26%.
BUYING GUIDE
Last Updated: Mar 30, 2007
Roundtrip buying costs range from 4% to 7.5%. However, this can be as high as 26% because of the 18% VAT on newly-built properties. The real estate agent’s commission is negotiable from 2% to 5%.
LANDLORD AND TENANT
Last Updated: Nov 10, 2006
Latvia’s rental market is generally pro-landlord.Rents: Rents can be freely agreed between landlord and tenant. Rent control exists only on denationalized buildings.
Tenant Security: Contracts for any period of time are possible, and terminate on the expiry of the term, without need for notice. If the tenant withdraws from the lease, he can in theory be made to pay the entire amount of the lease or rental payment.
ECONOMIC GROWTH
Last Updated: Jun 03, 2010
Economic recession hits Latvia’s economy
Latvia, together with the other Baltic States, has successfully shifted from a centrally planned to a market–oriented economy. Located in northeastern Europe, Latvia has a population of 2.27 million. It was admitted into full-membership in EU in 2004.The consensus view is that the Latvian economy is in for a ‘hard landing’ after the rapid growth of the past few years. Latvia’s economy shrank by 0.9% in 2008. Economic contraction is expected to persist, with GDP falling by as much as 5% in 2009 and 3% in 2010. This is a dramatic reversal from an average annual GDP growth of 11% from 2005 to 2007 and 7.5% from 2000 to 2004.
During the boom years, low interest rates combined with high GDP growth caused the economy to overheat, together with the housing market. Latvian banks were lending money to consumers at interest rates lower than the inflation rate.
Annual inflation rose from an average of 2.5% between 1999 and 2003, to 6.5% from 2004 to 2006. In 2007, inflation was 10.1%, way beyond the EU limit of 3.2%.
The crisis has been worsened by the impact of the lats’ peg to the euro. The Bank of Latvia’s options in tackling inflation are limited. During the boom years the currency peg to the euro took away the central bank’s ability to tame inflationary pressures by raising interest rates. Hence, the fiscal and monetary authorities had to resort to other measures to bring down inflation. Access to credit was limited; taxes were raised. The government sharply reduced spending, leading to economic contraction.
These measures caused a crisis in the housing market. The market’s problems were then compounded by ballooning interest rates, initially in line with higher euro rates, but which then spiraled higher and higher as the central bank sought to defend the currency.
The government faces a very delicate balancing act. It needs to boost the economy but inflation remains very high. It cannot increase government spending due to the limits on debt and deficit spending set by the ERM II. Financial assistance from other countries will push the current account deficit higher, making the lat more vulnerable to speculative attacks.
Latvia’s current account deficit was at 22.9% of GDP in 2007 before falling to 15% of GDP in 2008, still one of the highest in Europe. As the economic debacle continues, the housing market will continue to slide for the next two to three years.
