Latvia

Partly due to amendments to the Immigration Law in July 2011, demand for Latvian properties is now rising.

The total number of property purchases across the country increased by 5.3% y-o-y to July 2011. In Riga, the number of purchase contracts rose by 7.2% in H1 2011 compared to the same period last year.

There was an increase in foreign demand, primarily driven by Russians. For some Russians, securing residency in Latvia is attractive due to political uncertainty at home – the wish to have a so-called “reserve airfield”.

In the nine months since the law’s enactment a total of 192 residence permits were issued (466 if family members are included). 128 foreigners have been granted permanent residency in Latvia due to real estate investments, up from 55 last year.

A foreigner can receive permanent residency in Latvia (according to the Baltic Legal):

      • if a person invests LVL50,000–LVL100,000 in real estate, depending on the size of the town (LVL 100,000 – in the Riga Planning Region, Jelgava, Daugavpils, Jēkabpils, Liepāja, Rēzekne, Valmiera or Ventspils; LVL 50,000 – in other areas);
      • if a person invests at least LVL 200,000 in a Latvian credit institution in the form of subordinated capital (such transaction must be for not less than five years);
      • if a person invests LVL 25,000 in the equity capital of a company to be registered in Latvia, following this up with a payment of at least LVL 20,000 in one year’s time.

Despite this, house prices have not yet recovered. The average Riga house price fell 3.4% y-o-y to end-July 2011, to €575 (LVL 402.5) per square metre, according to Citadele.

The average price of non-renovated apartments was down 4.1% in July 2011 compared to last year, according to online newspaper LETA’s survey, conducted in Teika, Purvciems, Plavnieki, Ziepniekkalns, Imanta and Agenskalns.

These house price falls contrasted with the first quarter, when Riga house prices rose 8.23% y-o-y, according to Arco Real Estate.

Currently:

      • The price of one-bedroom apartments in Riga ranges from €18,000 (LVL12,600) to €27,000 (LVL18,900).
      • The price of two-bedroom apartments in Riga ranges from €24,000 (LVL16,800) to €36,000 (LVL25,200).
      • The price of three-bedroom apartments in Riga ranges from €30,000 (LVL21,000) to €43,000 (LVL30,100).
      • The price of four-bedroom apartments in Riga ranges from €40,000 (LVL28,000) to €47,000 (LVL32,900).

Read Rental Yields  »

Read Taxes and Costs  »

Read Buying Guide  »

Read Landlord and Tenant  »

Latvia’s projected 2011 GDP growth has been raised from 2.7% to 3.3% by the International Monetary Fund (IMF).The IMF expects economic growth of 4% in 2012.

After a deep recession during the past three years (-4.2% in 2008, -18% in 2009, and -0.34% in 2010), economic growth resumed in the second half of 2010.

Latvia’s recovery was mainly driven by exports and an improving business and investment climate. However analysts are still worried about worsening economic conditions in the euro zone, fiscal consolidation measures, and the weak labor market.

The Latvian crisis began with an amazing period of rapid economic and wage growth combined with loose monetary policy which led to an overheated economy. Annual inflation rose from 2.5% between 1999 and 2003, to over 10% in 2007.

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.

With recovery inflation has returned. The consumer price index rose by 4.7% y-o-y to August 2011, but is projected to settle back to 2.5% in 2012, according to the Bank of Latvia, which has kept its main monetary policy interest rate, the refinancing rate, and other primary interest rates unchanged at 3.5% since March 2011 (see Central Bank News).

"In recent months the trend of abating inflation has become evident, with only the raising of several tax rates preventing a more rapid drop in prices," the Bank said.

The peg to the euro which was intended to make Latvia competitive came at a huge cost. The economy contracted by 18% in 2009, unemployment rose to 17%, and real wages fell by as much as 30%.

In 2010, the country’s unemployment rate was 19%, in contrast to the 7.5% average from 2005 to 2008.

However, the recovery has already greatly reduced unemployment, and  by end-Q2 2011, unemployment stood at 11.9%.  The lowest unemployment level is in Riga Region (8.9%), whilst the highest is in Latgale Province (20.1%).

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). With painful budget cuts and other fiscal consolidation measures, the third tranche of the loan worth €500 million was released by the European Commission in early 2010. 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.

Under the bailout agreement, Latvia must reduce the budget deficit to 6% of GDP in 2011. The government will have to be resourceful, as the Constitutional Court overturned the government’s plan to reduce pensions by 10% and payments to working retirees by 70%. Pensions account for 20% of government expenditure.

Latvia has a population of 2.27 million. It was admitted to full EU membership in 2004.