Latvia

Residential property prices in Latvia continue to rise strongly, amidst limited supply as well as stronger economic growth. According to Arco Real Estate’s figures, apartment prices in Riga surged by 9.03% (5.99% in real terms) to €761 (US$907) per sq. m. during the year to October 2017, up from a y-o-y rise of 7.22% during the same period last year.

Real estate agent OberHaus shows more muted growth, with the average apartment prices in Riga rising by 4.78% y-o-y in October 2017 to €1,205 (US$1,435) per square metre (sq. m.), a sharp slowdown from last year’s 9% growth, according to real estate agent OberHaus. When adjusted for inflation, apartment prices rose by just 1.87% over the same period.

OberHaus tends to deal in high-end city-centre housing, while Arco deals in the estates.

Outside Riga, apartment prices are also rising rapidly.

• In Ogre, one of Latvia’s greenest towns due to its amazing parks and forests, the average apartment price increased 14.3% during the year to October 2017 to €543 (US$647) per sq. m.
• In Kauguri, a popular residential area in the western part of Jurmala, the average apartment price rose by 11.1% y-o-y in October 2017, to €522 (US$622) per sq. m.
• In Salaspils, mostly known for its military history, the average apartment price rose by 16.1% y-o-y in October 2017, to €606 (US$722) per sq. m.
• In Jelgava, a hospitable city located on the banks of the River Lielupe, the average apartment price surged 18.9% during the year to October 2017 to €471 (US$561) per sq. m.

In the third quarter of 2017, the Lavian economy grew by 5.8% from the same period last year, the strongest growth in the Baltics in Q3 and the fastest pace since Q1 2012, according to the Central Statistical Bureau of Latvia (CSB). The economy is projected to grow by 4.5% this year, from annual expansions of 1.9% in 2016, 2.7% in 2015, 2.1% in 2014, 2.6% in 2013, and 4% in 2012, according to Latvia’s Ministry of Economics.

“The number of apartments offered for sale has gone down, month on month, since April,” said BALSTS. “Owners are willing to wait for further price increase.”

“Price growth is driven by the protractedly rising demand and the limited supply of good quality apartments in the most demanded neighbourhoods,” said Latio.

The neighborhoods in Riga with the highest demand include Purvciems, Kengarags, Imanta, and Plavnieki. Strong demand is also recorded in Ziepniekkalns, Jugla, Iļģuciems and Vecmīlgrāvis.

Why the strong demand? Partly because foreigners get a five-year residence permit in Latvia if they buy residential real estate, under Immigration Law amendments implemented on July 1, 2010. The conditions were then (according to Baltic Legal):

• The transaction should exceed €142,000 (US$ 169,150) in Riga or Jurmala, or €71,000 (US$ 84,575) in other regions;
• Only non-cash funds may be used to buy real estate;
• The buyer must not have any real estate tax arrears in Latvia (and must never have had such arrears);
• Transaction concluded after July 1 2010.

Since the foreign real property buyer visa scheme was launched in July 2010, most foreign buyers have been Russians, looking for properties in Riga and Jurmala. With Latvia considered to have one of the lowest house prices in Europe, foreigners now account for 70% of all property transactions. In recent years, most of the in-demand properties were located in Jurmala, according to the Office of Citizenship and Migration Affairs. Russians have made the most purchases, followed by Ukrainians, Chinese, Kazakhs, and Uzbeks, according to Arco Real Estate’s chairman of the board of directors, Aigars Smits.

In September 2014, Immigration Law amendments increased the threshold for obtaining a residence permit and introduced other conditions and costs, if a foreigner’s real estate was registered in the Land Register after September 1, 2014:

• Minimum transaction value of real estate located anywhere in Latvia must be €250,000 (US$ 297,798).
• The total cadastral value of the property at the time of acquisition should be at least €80,000 (US$ 95,295).
• Payment of a state budget contribution worth 5% of the real estate’s transaction value.

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On January 1, 2014, Latvia adopted the euro. Its adoption is a recognition of economic success, especially in taming inflation and limiting the budget deficit, estimated at 1.2% both in 2014 and 2015 before achieving a balanced budget in 2016, according to the European Commission. The deficit is expected at around 0.9% this year and at 1% in 2018.

In the third quarter of 2017, the economy grew by 5.8% from the same period last year, the strongest growth in the Baltics in Q3 and the fastest pace since Q1 2012, according to the Central Statistical Bureau of Latvia (CSB). The strong growth was fuelled by favourable external factors, such as robust growth in other EU member states and availability of EU funds, and a fast inflow of investment in the construction sector.

The economy is projected to grow by 4.5% this year, from annual expansions of 1.9% in 2016, 2.7% in 2015, 2.1% in 2014, 2.6% in 2013, and 4% in 2012, according to Latvia’s Ministry of Economics.

Latvia’s public debt was projected to fall to 39.1% of GDP in 2017, down from 40.6% in 2016, according to the European Commission.

In Q3 2017, nationwide unemployment stood at 8.5%, down from 9.5% a year earlier, according to the CSB. The country’s jobless rate averaged 17.1% from 2009 to 2012 and 10.6% from 2013 to 2016.

Overall inflation was 2.7% in November 2017, slightly down from 2.8% the previous month but up from just 1.3% a year earlier, according to the CSB. In 2016, overall inflation stood at just 0.1%, from 0.2% in 2015, 0.7% in 2014, 0.01% in 2013, 2.3% in 2012, and 4.2% in 2011, according to the International Monetary Fund (IMF).

Latvia has officially become the 35th member of the prestigious OECD in July 2016. “To a certain extent, it (Latvia’s accession to the OECD) is a matter of prestige. Some of the key questions asked by investors are about whether it is geopolitically safe here, whether we have reduced corruption, and the OECD membership would partly be an answer to the investors that we are a trustworthy country, not some kind of a banana republic,” said Finance Minister Dana Reizniece-Ozola.

“The accession process has already brought significant benefits and improvements for Latvia: it has been the driving force behind reforming the governance of state-owned capital enterprises and has also served as an additional incentive to enhance our capacity in countering bribery in international business transactions,” Prime Minister Māris Kučinskis said.

In February 2016 PM Kučinskis took office after former PM Laimdota Straujuma resigned in December 2015, due to the infighting within the ruling coalition. PM Kučinskis is a member of the Union of Greens and Farmers, and Latvia’s first prime minister not to be a member of the Unity Party since 2009.

Aside from PM Kučinskis, Latvia also elected Raimonds Vējonis as state president in June 2015. State President Vējonis is a member of the Green Party, which is a part of the Union of Greens and Farmers.

Latvia’s relations with Moscow deteriorated following Russia’s annexation of Crimea in 2014. Russia’s aggression prompted Estonia, Lithuania, and Latvia to seek NATO troop deployments in their nations. Article 5 of NATO’s charter states that a military attack on one member state is an attack on all of them.

However in November 2017, Russia and Latvia signed an agreement on easing the procedures on mutual journeys of border residents of the two countries; and the plan of cooperation between the two countries for 2018-2019 in such areas as security, cooperation in international organizations, and the Baltic Sea region.