Latvia

In the highest annual rise for more than nine years, average apartment prices in Riga rose by 9.75% y-o-y in November 2016 to €1,159 (US$1,235) per square metre (sq. m.),after growth of just 0.28% a year earlier, according to real estate agent OberHaus. When adjusted for inflation, apartment prices rose by 8.44%.

Although their figures are based on different transactions, Arco Real Estate’s figures show a similar trend, with apartment prices in Riga rising by 7.66% (6.37% in real terms) to €703 (US$749) per sq. m. during the year to November 2016 - in this case, the 13th consecutive month of annual house price rises above 2%.

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

In Riga’s city centre, new apartments are priced from €1,450 (US$1,545) to €3,800 (US$4,048) per sq. m. in 2016 while in the suburbs of Riga, prices ranged from €1,000 (US$1,065) to €1,750 (US$1,864) per sq. m., according to real estate firm BALSTSAigarsZarins.

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 7.5% during 2016 to €477 (US$ 508) per sq. m.
• In Kauguri,a popular residential area in the western part of Jurmala, the average apartment price rose by 12.4% during 2016, to €470 (US$ 501) per sq. m.
• In Salaspils, mostly known for its military history, the average apartment price rose by 12.4% during 2016, to €530 (US$ 565) per sq. m.
•  In Jelgava, a hospitable city located on the banks of the River Lielupe, the average apartment price rose by 9.6% during 2016 to €400 (US$ 426) per sq. m.

Demand remains strong. During 2016, the number of real estate transactions increased 10.5% from the previous year, according to BALSTS.

Optimism remains high. “All indicators show that the real estate market development, which has begun during the last two years should continue in 2017,” commented the CEO of BALSTS. “We expect that in 2017 the average price growth will continue to increase.”

However in the third quarter of 2016, the economy grew by just 0.8% from the same period last year, a sharp deceleration from a 3.3% y-o-y expansion in Q3 2015 and the slowest pace of growth since Q4 2010, according to the Central Statistical Bureau of Latvia (CSB).Latvia’s economy was estimated to have grown by about 1.4% in 2016, the weakest growth since 2010, according to the Bank of Latvia. Though, the economy is projected to pick up this year, with a 3% annual growth.

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$ 151,266) in Riga or Jurmala, or €71,000 (US$ 75,633) 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$266,313).
• The total cadastral value of the property at the time of acquisition should be at least €80,000 (US$85,220).
• 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 0.8% in 2016, slightly down from a deficit of 1.3% of GDP in 2015, according to the European Commission. The deficit is expected at around 1.1% this year and at 1.2% in 2018.

In the third quarter of 2016, the economy grew by just 0.8%y-o-y,the slowest pace of growth since Q4 2010, according to the Central Statistical Bureau of Latvia (CSB). The construction sector plunged by a massive 24% y-o-y in Q3 2016, which weighed heavily on the country’s overall economic activity.

The economy is projected to pick up this year, with 3% annual growth.

Latvia’s public debt was projected at 37.2% of GDP in 2017, down from 40% in 2016, according to the European Commission.

In November 2016, unemployment stood at 8%, down from 17.1% from 2009 to 2012.

Consumer prices increased 1.3% y-o-y in November 2016, from zero inflation in the same period last year, according to the CSB. In 2015, overall inflation stood at 0.2%, from 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 bec0me 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.

Latvia has had a new prime minister, MārisKučinskis from February 2016. PM Kučinskis took office after former PM LaimdotaStraujuma 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 RaimondsVējonis 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.

One of the new government's biggest challenges is geopolitical tensions due to Russia’s aggressive action in seizing the Crimea in 2014. Russia’s aggression prompted Estonia, Lithuania, and Latvia to seek NATO troop deploymentsin their nations.

“An Allied presence is an essential prerequisite for Latvia’s security in a situation where Russia does not change its policies regarding the Ukraine conflict and, at the same time, strongly demonstrates its military presence and potential in the Baltic Sea region,” said Latvia’s Ministry of Defense.

Article 5 of NATO’s charter states that a military attack on one member state is an attack on all of them.  So in theory Latvia should be safe. 

But NATO’s former secretary-general Anders Fogh Rasmussen, warned the Baltic states in early 2015 that Putin may attack all the same.

“There is a high probability that he will intervene in the Baltics to test Nato’s Article 5... Putin knows that if he crosses the red line and attacks a Nato ally, he will be defeated. Let us be quite clear about that. But he is a specialist in hybrid warfare,” according to Rasmussen.

Anxiety about Russia's intentions remains high, especially with an untested new leader in the White House, who appears to be committed to improving Russia-US relations, and who has been highly critical of NATO.