Latvia: Overview

RENTAL YIELDS

Yields are moderate in Riga

Gross rental yields in Riga are moderate at around 4.77% - 5.43%. This is relatively subdued, by Eastern European standards, reflecting the fact that Latvia has long been a favorite of foreign buyers and that therefore much growth is already ‘in the price’.

Rents in residential districts have been climbing, but less fast than prices.

Read Rental Yields  »

TAXES AND COSTS

Rental income tax is high in Latvia

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000
Tax Rate	nil	nil
Click here to see a worked example
Source: Disclaimer

Rental Income: Non-residents pay 25% income tax on their net rental income.

Capital Gains: Capital gains are taxed as ordinary income, at 25%.

Inheritance: There is no inheritance tax.

Residents: Residents are taxed on their worldwide income.

Read Taxes and Costs  »

BUYING GUIDE

Roundtrip costs are low in Latvia, except for newly-built units

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%.

Read Buying Guide  »

LANDLORD AND TENANT

Latvia is pro-landlord

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.

Read Landlord and Tenant  »

ECONOMIC GROWTH

Latvia's GDP growth in Europe is fastest

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 2.3 million. It was admitted into full membership in EU in 2004.

Latvia’s economic growth has been the strongest in Europe, so it is unsurprising that its housing market has done well till recently. Unemployment has fallen to 6.1% Real GDP per capita has more than doubled since independence, to around US$8,400 in 2006.

Yet the consensus view is that the Latvian economy is in for a ‘hard landing’ after the rapid growth of the past few years.

Problem signs:
* The current account deficit rose to 26.3% of GDP in 4Q 2006, from 15.2% a year earlier.
* Inflation was sharply up at 8.9% in April 2007, up from 6.5% last year, and 1.9% in 2002.
* Loans to residents grew 60.4% in the year to Q4 2006 (58.2% and 61.7% in the previous two years).
* Long-term interest rates are sharply up.

Standard & Poor’s (S&P) changed its outlook in February on Latvia’s long-term forex-denominated liabilities to negative, and then on 17 May lowered the rating from A- to BBB+. This brings Latvia back to the credit-worthiness rating it held in 2002.

The Lats came under pressure in February in response to the S&P revision, and the Bank of Latvia had to intervene. The Euribor interest rate on Euro variable rate loans jumped to 10% in June, from 5% in January.

The supply of new housing is now at historically high levels. With relatively subdued yields, and high interest rates, the Global Property Guide discouraged investment in Latvia.