During the latest quarter, Riga apartment prices rose by 2.3% (1.5% in real terms).
New apartments in Riga's Old Town and the city centre range from €1,700 (US$ 2,303) to €4,000 (US$ 5,419) per sq. m., while exclusive projects can cost from €4,500 (US$ 6,096) to €5,000 (US$ 6,774) per sq. m. In residential districts, new apartments are priced from €1,100 (US$ 1,490) to €1,800 (US$ 2,438) per sq. m.
Latvia is in an unusual situation. Gross rental yields are very attractive. Economic growth has been the highest in Europe during the past three years. Latvia joined the euro in January. It has a new and well-respected prime minister. So the signs are extremely good.
Yet although property prices have been increasing, mortgage lending for housing in Latvia has been declining. The total loans for house purchases fell by 5.7% to € 4.9 billion (US$ 6.7 billion) during the year to April 2014, according to the Bank of Latvia. So there is still some property overhang, the legacy of the boom years.
The average euro-denominated housing loan interest rate was about 3.53% in March 2014. For US dollar-denominated loans it was 3.41%.
Latvia’s economy has grown for the third consecutive year, following the recession from 2008 to 2010. GDP growth in 2013 was strong at 4.1%, only slightly down on the 5.2% GDP growth in 2012, and the 5.3% GDP growth in 2011.
Economic growth is expected to continue in 2014. The European Commission (EC) forecasts 4.2% growth for Latvia for 2014, the highest growth in the European Union. Latvia’s Economic Ministry (EM) forecasts 4.5% GDP growth, based on the continuous increase of exports from Latvia, and other forms of stimulus.
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 are (according to Baltic Legal):
- The transaction must exceed €142,000 (US$ 192,367) in Riga or Jurmala, or €71,000 (US$ 96,184) 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.
Analysis of Latvia Residential Property Market »
The suburbs of Riga included in our research are Purvciems, Teika, Mezaparks and Vecmilgravis. A 40-square metre (sq.m.) apartment in these areas costs around EUR 55,200 to buy, but could earn around EUR 260 monthly rental income. Property owners thus enjoy rental yields of 5.75%.
Prices of property have risen by around 5% over the past year in Riga. The property market's recovery began in 2010 and accelerated in 2011, but since then the market has been much quieter.
Round trip transaction costs are low to moderate in Latvia. See our Property transaction costs analysis for Latvia and Property transaction costs in Latvia, compared to the rest of Europe
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 24%.
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.
By the second half of 2007, the housing bubble had burst. Demand plunged. House prices plummeted. The Latvian economy almost collapsed, with real GDP declining by 3.3% in 2008, by 17.7% in 2009, and by 0.34% in 2010.
By early 2008, the boom was over. The country’s fiscal deficit was shooting up. Capital was leaving the country. Exports were falling. Domestic demand was collapsing. By 2009, Latvia was close to economic collapse. The economy shrank by about 25% from the start of the global crisis in 2008 to end-2010, making it the deepest depression recorded worldwide. Unemployment surged from 6.2% in 2007 to 19% in 2010
Latvia’s currency peg meant the Bank of Latvia could not raise interest rates to tame inflation. Instead, when the crisis hit, the authorities resorted to a scorched-earth internal devaluation: access to credit was limited, taxes raised, wages were reduced and government spending cut.
In 2008, Latvia was able to secure a €7.5 billion standby loan from a group lead by the European Union (EU) and the International Monetary Fund (IMF), coupled with rigid austerity measures. The bailout prevented total economic collapse. More than €3.3 billion of the funds were used to pay public sector wages and maintain essential services.
Six years later, the situation in Latvia looks much more hopeful. On January 1, 2014, Latvia adopted the euro. The adoption of the euro was originally planned on January 1, 2008 but was delayed several times. Its adoption is a recognition of economic success.
The currency adoption will most likely improve trade by lowering costs, and also will likely help economic and financial integration between Latvia and other European Monetary Union (EMU) members. Before the currency adoption, Latvia’s old currency (Latvian Lats) was pegged to the euro at Ls 0.702804 = €1 in 2005.
Latvia also has a new prime minister, Laimdota Straujuma. She assumed office on January 22, and is the first woman to serve as the head of government of Latvia, following the resignation of former Prime Minister Valdis Dombrovskis.
Straujuma only joined a political party (Unity Party) on January 5, 2014, and had not been a member of any party prior to that. The prime minister is often compared to Germany's Angela Merkel, is also backed by a four-party coalition consisting of the conservative Unity Party, the right-wing National Alliance, the centre-right Reform Party and the centrist Union of Greens and Farmers.
Latvia’s recovery 2011-14 has mainly been driven by exports and an improving business and investment climate. Exports grew by 33% in 2011. The IMF has hailed Latvia’s cost-cutting efforts as a model for indebted eurozone countries.
Prior to the strong growth in the past three years, Latvia experienced a deep recession. From the start of the global crisis in 2008 to end-2010, the economy shrank by about 25%, making it then the largest depression recorded worldwide. Unemployment surged from 6.2% in 2007 to 18.7% in 2010.
In May 2014, unemployment fell by 0.5 percentage points to 9.1%, according to the State Employment Agency. Riga region has the lowest unemployment at 5.8%, while Latgale has an unemployment rate of 19%.
The country’s annual inflation rate was only 0.6% in May 2014, according to the Central Statistical Bureau of Latvia (CSB).