Latvia's housing market is showing signs of improvement, with both property transactions and residential construction activity now rising again. However, price movements are mixed.

Table of Contents

• Housing Market Snapshot
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Historic Perspective
• Socio-Economic Context

Housing Market Snapshot

In Riga, Latvia's capital city, apartment prices dropped 3.96% to €848 (US$940) per square meter (sqm) in July 2024 as compared to the same period last year, according to Arco Real Estate's figures. It was the nineteenth consecutive month of y-o-y price decline but far lower than the prior year's 9.25% drop. When adjusted for inflation, apartment prices actually fell by 4.65% y-o-y in July 2024.

Apartment prices in Riga fell slightly by 0.12% (-0.19% in real terms) m-o-m over the same period.

In contrast, figures from the Central Statistical Bureau showed that nationwide house prices rose by a modest 3.66% (2.72% in real terms) during the year to Q1 2024 (the latest figures available), following y-o-y increases of 0.82% in Q4 2023, 3.02% in Q3, 5.38% in Q2, and 5.87% in Q1.

By property type:

• New dwellings: prices increased strongly by 11.06% (10.05% in real terms) y-o-y in Q1 2024.
• Existing dwellings: prices rose slightly by 1.24% (0.33% in real terms) over the same period.

Latvia's house price annual change

After falling in the past two years, demand has shown some improvements in the first half of 2024. In Riga, the total number of transactions for new housing projects rose by 2% in H1 2024 from H2 2023, and by 7% when compared to the same period last year, according to Arco Real Estate.

Likewise, the residential construction sector is also improving again, after experiencing a slump last year, with both the number and area of new dwellings commissioned in Latvia rising by 14.4% and 33.1%, respectively, in the first half of 2024 as compared to a year earlier, based on figures from the Central Statistical Bureau. In the Riga region, however, both the number and area of new dwellings commissioned fell by 22.3% and 10.7% y-o-y, respectively, over the same period.

During 2023, Latvia's economy contracted by 0.3% from a year earlier, amidst weak private consumption and exports. It was in contrast to annual growth of 3% in 2022 and 6.7% in 2021.

Then in Q2 2024, the economy expanded by a meager 0.5% year-on-year, following a miniscule growth of 0.1% in Q1 2024 and annual declines of 0.5% in Q4 2023 and 0.6% each in Q3 and Q2 2023, according to the Central Statistical Bureau of Latvia. On a seasonally adjusted quarterly basis, GDP declined by 0.9% during the latest quarter, in contrast to a 0.8% expansion in the previous quarter.

Both the European Commission and the IMF expect Latvia's economy to expand by 1.7% this year, mainly driven by increased household purchasing power supported by real wage growth, higher public investment, and stronger external demand.

Demand Highlights

Demand is recovering

Demand declined in the past two years, as many buyers could not afford to take out loans due to a surge in interest rates and a decrease in their purchasing power amidst high inflation. In Riga, the total number of new apartment sales transactions declined by 6% y-o-y to 2,170 units in 2023, according to Ober Haus, following an annual fall of 4% in 2022.

"The decline in market activity was recorded in all market segments - it affects both the cheapest and often, the energy inefficient housing in Soviet serial buildings, as well as the more expensive first-time market," said Ober Haus. "The number of reservations in newly built residential projects is also lower than usual. Buyers are in no hurry to book apartments under construction, preferring to wait until the project is completed."

This is supported by figures from Latio, which showed that the total number of apartment sales transactions in Latvia dropped by 9% y-o-y in 2023 to about 24,600 units. Likewise, the value of transactions also declined by 9% to €1.33 billion (US$1.46 billion) last year.

But in the first half of 2024, the activity in the market for new housing projects in Riga is showing some signs of improvements, with the total number of transactions rising by 2% from H2 2023, and by 7% when compared to the same period last year.

Foreigners, who buoyed the market in recent years, typically account for about 70% of all property transactions in the country annually. They are attracted to Latvia partly because it has one of the lowest house prices in Europe. In addition, 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:

• The transaction should exceed €142,000 (US$156,342) in Riga or Jurmala, or €71,000 (US$78,171) 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.

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:

• The minimum transaction value of the real estate must be €250,000 (US$275,250) in large cities or at least €125,000 (US$137,625) in other places (in which case at least two properties must be bought), according to Baltic Legal.
• The total cadastral value of the property at the time of acquisition should be at least €80,000 (US$88,080).
• Payment of a state budget contribution worth 5% of the real estate's transaction value.

In recent years, most of the in-demand properties were located in Riga and Jurmala, according to the Office of Citizenship and Migration Affairs. Russians were the top residential real estate investors in Latvia, followed by Ukrainians, Chinese, Kazakhs, and Uzbeks, according to Arco Real Estate's chairman of the board of directors, Aigars Smits.

Supply Highlights

Residential construction activity improving again

During 2023, the number of new dwellings authorized in Latvia fell by 12.9% to 2,736 units, in contrast to a y-o-y increase of 10.1% in 2022, according to the Central Statistical Bureau. Likewise, the area of new dwellings authorized declined by 13.2% y-o-y to 377,300 square meters last year, following a huge growth of 22.9% in the prior year.

After a slump last year, the residential construction sector is showing signs of improvement again, with both the number and area of new dwellings commissioned rising by 14.4% and 33.1%, respectively, in the first half of 2024 from a year earlier.

By region, during the year to H1 2024:

• In the Riga region, however, both the number and area of new dwellings commissioned fell by 22.3% and 10.7% y-o-y, respectively.
• In Pierīga, which accounted for half of the total dwellings commissioned, both the number and area of permits rose strongly by 10.7% and 23.8%, respectively.
• In Vidzeme, the number of dwelling permits soared by 75% y-o-y and the area increased strongly by 87.1%.
• In Kurzeme, both the number and area of new dwelling permits almost doubled in H1 2024 as compared to the same period last year.
• In Zemgale, the number and area of dwelling permits skyrocketed by 202.4% and 171.1%, respectively.
• In Latgale, the number of permits increased by 126.1% and the area ballooned to 125%.

Riga and Pierīga regions accounted for almost three-fourths of all new dwelling authorizations in the first half of 2024.

By end-H1 2024, there were about 180 apartments offered for sale in new housing estates in the center of Riga and in districts close to the city center such as Kipsala and Kliversala, down by 13% as compared to the end of 2023, according to Arco Real Estate. In Riga, the largest number of offers of apartments in new housing projects was in Teika. On the other hand, there were no apartments offered for sale in Vecmilgravis by the middle of 2024.

The total housing stock in Latvia reached 77.75 million square meters in 2020, the latest figures available from the Central Statistical Bureau of Latvia.

Rental Market

Rental yields are good but the rental market remains underdeveloped

Apartments located in Latvia can earn gross rental yields ranging from 4.15% to 11.68%, with a national average of 8.06% in Q2 2024, up from 7.81% in Q3 2023, according to research conducted by the Global Property Guide.

• In Riga, apartments offer an average rental yield of 8.47% in Q2 2024.
• In Jurmala, rental yields averaged 7.66% over the same period.

However, Ober Haus' figures are lower, with residential yields at the city center averaging 4.9% in 2023, up from 3.7% in 2022 and 3.9% two years earlier.

Round-trip transaction costs are low to moderate in Latvia. See our Property transaction costs analysis for Latvia.

Latvia's rental market remains poorly developed, according to a study published by the OECD. About two-thirds of the rental market consists mainly of Soviet-era housing and a third of the population lives in overcrowded housing units. Only 12% of the country's housing stock is offered as rental accommodations.

A new law on the Lease of Dwelling Premises came into force in May 2021, which regulates the relations between the tenant and the landlord of a dwelling - defining their rights, duties, and responsibilities, the grounds for termination of the contract, and the basic terms of the lease agreement.

Apartment rents rising modestly

In Riga, monthly rents for two-bedroom apartments in new developments in the Centre rose by 4.5% to €690 (US$763) during 2023, according to Latio.

Rents for standard apartments located in residential areas in Riga in 2023, based on Ober Haus figures:

• One-bedroom apartments: €200 (US$222) to €400 (US$444) per month in residential areas; €400 (US$444) to €600 (US$666) per month in the city center; and €800 (US$887) to €1,200 (US$1,331) per month for exclusive apartments in the city center and old town;
• Two-bedroom apartments: €250 (US$277) to €450 (US$499) per month in residential areas; €550 (US$610) to €700 (US$776) per month in the city centre; and €900 (US$998) to €1,400 (US$1,553) per month for exclusive apartments;
• Three-bedroom apartments: €500 (US$555) to €800 (US$887) per month in residential areas; €600 (US$666) to €900 (US$998) per month in the city center; and €1,000 (US$1,109) to €2,000 (US$2,219) per month for exclusive apartments in the city center and old town.

In the neighborhoods of Āgenskalns, Imanta, and Ziepniekkalns situated at the left bank, rents for 2-BR apartments in new projects ranged from €490 (US$544) to €645 (US$715) per month in 2023. In the neighborhoods of Purvciems, Kengarags, and Teika located in the right bank, rents for the same property in new projects ranged from €415 (US$460) to €545 (US$605) per month.

Mortgage Market

Interest rates stabilizing

In June 2024, the European Central Bank (ECB) slashed its key interest rate by 25 basis points to 4.25%, its first rate cut since March 2016, as inflationary pressures eased. Prior to the shift in monetary policy, the ECB had raised its key interest rate ten times from 0.00% in June 2022 to 4.50% in September 2023.

Latvia's mortgage loan interest rates:

The interest rates on the marginal lending facility and the deposit facility were also cut by 25 basis points each to 4.5% and 3.75%, respectively.

"Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady," said the ECB in its June 2024 press release.

"Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons."

Following the ECB move, interest rates for housing loans are now stabilizing.

For new housing loans, in June 2024:

• Floating rate and up to 1-year initial rate fixation (IRF): 5.27%, slightly down from 5.35% but still far higher than the 2.15% two years ago
• 1-5 years IRF: 10.52%, up from 9.4% in the previous year and 9.86% two years earlier
• 5-10 years IRF: 10.1%, up from 9.42% in the same period last year and 9% two years ago
• Over 10 years IRF: 5.37%, down from 5.65% a year earlier and 4.42% two years ago

For outstanding loans, in June 2024:

• Housing loans with maturity of up to 1 year: 6.25%, up from 5.9% a year earlier and 3.13% two years ago
• Housing loans with maturity over 1 year and up to 5 years: 11.02%, up from 10.79% in the previous year and 9.42% two years ago
• Housing loans with maturity over 5 years: 5.98%, higher than the 5.23% in June 2023 and sharply up from 2.3% in June 2022

Small mortgage market

During 2023, the size of the Latvian mortgage market as a percentage of GDP stood at 11.9%, down from 14% of GDP in 2020, 20% of GDP in 2014, and 36.3% of GDP in 2010.

The continued decline in the size of the mortgage market indicates that it has not yet truly recovered from the 2008-09 global financial crisis, despite the introduction of the state-guaranteed mortgage loan program in 2015, under which the Latvian Development Finance Institution (ALTUM) provides guarantees for mortgage loans for families with children and young professionals.

The Housing Guarantee Programme in Latvia provides guarantees ranging from 5% to 30% of the total loan amount, depending on the number of children, with additional increases for energy-efficient homes. Since the program's inception, it has supported about 25,000 families and reached a total investment of €1.9 billion (2.13 billion).

Yet financing and state support remain insufficient. About 44% of households are unable to qualify for the government's financial assistance or meet mortgage requirements, the OECD study noted.

In June 2024, the total amount of outstanding housing loans rose by a modest 3.2% to €4.88 billion (US$5.46 billion) from a year earlier, following a y-o-y growth of 2.4% in the same month last year and 8.7% two years ago, according to the figures released by the Bank of Latvia.

Historic Perspective

Latvia's housing boom and bust

Latvia had one of the world's biggest housing market crashes after 2007. In the second half of 2007 house prices began to fall, having risen almost 700% from 2000 to 2007, and inflation ballooned.

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 6.1% in 2007 to 19.5% in 2010, despite Latvia securing a €7.5 billion standby loan from a group led by the European Union (EU) and the International Monetary Fund (IMF). The bailout prevented total economic collapse but was coupled with rigid austerity measures. The country's fiscal deficit shot up, capital left the country, exports fell, and domestic demand collapsed.

• In 2007, apartment prices fell by 5% (-16.7% in real terms) from a year earlier.
• In 2008, apartment prices plummeted by 30.5% (-37.1% in real terms) y-o-y
• In 2009, property prices plunged by another 42% (-41.3% in real terms)

Then in 2010, the housing market started to recover, with house prices rising by 5% (2.4% in real terms). House prices continued to increase by 5.8% in 2011 (1.7% in real terms), 2.1% (0.5% in real terms) in 2012, 3.2% (3.3% in real terms) in 2013-14, and 0.4% (zero growth in real terms) in 2015.

The housing market regained its momentum in 2016, thanks to strong economic growth, coupled with limited supply. House prices rose by 7.6% (5.3% in real terms) in 2016 and by another 8.8% (6.5% in real terms) in 2017.

The housing market has lost momentum since, with house price growth slowing to 3.9% (1.3% in real terms) in 2018 and further to 2.8% (0.5% in real terms) in 2019. During 2020, house prices fell 1.6% (-1% in real terms) due to the Covid-19 pandemic.

After strengthening in 2021 with a house price growth of 11.8% (3.6% in real terms), the housing market slowed again in 2022, amidst high inflation and rising interest rates, coupled with the adverse impact of the Ukraine war. House prices in Riga rose slightly by 1.6% during 2022 but actually declined by a huge 16% when adjusted for inflation.

The housing market weakened further last year, with house prices falling by 7.1% (-7.7% in real terms).

House prices outside Riga

Housing markets in the vicinity of Riga are also losing steam.

• In Ogre, the average price of standard-type apartments fell by 3.6% in July 2024 from a year earlier to €838 per sqm, according to Arco Real Estate.
• In Kauguri, Jūrmala, apartment prices dropped by 6.3% to an average of €775 per sqm over the same period.
• In Salaspils, apartment prices declined by 5.6% to an average of €827 per sqm in July 2024 from the same period last year.
• In Jelgava, apartment prices fell slightly by 0.3% in July 2024 from a year earlier, to an average of €730 per sqm.

Socio-Economic Contex

Latvia's economy remains weak, inflation decelerating rapidly

During 2023, Latvia's economy contracted by 0.3% from a year earlier, amidst weak private consumption and exports.

"The Latvian economy contracted in 2023 with significant disinflation against the backdrop of geopolitical headwinds. Notably, Russia's war in Ukraine and the related geoeconomic fragmentation are adding to long-standing challenges to productivity, investment, and labor supply, amid multiple transitions around climate change and energy, aging and labor shortages, and rising defense costs," said the International Monetary Fund (IMF).

In Q2 2024, the economy expanded by a meager 0.5% year-on-year, following a minuscule growth of 0.1% in Q1 2024 and annual declines of 0.5% in Q4 2023 and 0.6% each in Q3 and Q2 2023, according to the Central Statistical Bureau of Latvia.

• Government spending rose by 8.5% y-o-y in Q2 2024
• Fixed investment contracted by 5.7% y-o-y in Q2 2024
• Exports dropped by 3.4% while imports fell by 2.9%

On a seasonally adjusted quarterly basis, GDP declined by 0.9% during the latest quarter, in contrast to a 0.8% expansion in the previous quarter.

After registering a robust annual growth of 8.6%, on average, from 2000 to 2007, the economy plunged into a prolonged recession during the global financial crisis. The Latvian economy contracted by 3.2% in 2008, 14.3% in 2009, and 4.5% in 2010. The economy recovered since, but growth had been more uneven and modest, with an average annual growth of 3.3% from 2011 to 2019. The country suffered another economic contraction of 3.5% in 2020, due to pandemic-related restrictions and lockdowns.

The Latvian economy bounced back strongly in 2021, registering a robust growth of 6.7%. It was followed by a more modest growth of nearly 3% in 2022.

Both the European Commission and the IMF expect Latvia's economy to expand by 1.7% this year, mainly driven by increased household purchasing power supported by real wage growth, higher public investment, and stronger external demand.

"Growth is expected to pick up in 2024 as real disposable income growth accelerates and households' purchasing power strengthens. Public expenditure is set to remain strong, in particular through additional financing for healthcare and research," said the European Commission.

The country recorded a budget deficit of 2.2% of GDP in 2023, an improvement from shortfalls of 4.6% in 2022, 7.2% in 2021, and 4.4% in 2020, according to Eurostat. However, it remains far above the pre-pandemic average deficit of below 2% of GDP from 2012 to 2019.

The European Commission expects Latvia's deficit to increase slightly to 2.8% of GDP this year and further to 2.9% of GDP in 2025.

Latvia's public debt stood at 43.6% of GDP in 2023, from 41.8% of GDP in 2022, 44.4% in 2021, and 42.7% in 2020. It is still far higher than the 36.5% of GDP recorded before the Covid-19 pandemic. The public debt is expected to remain around 40% of GDP in the next two years.

Labor market conditions remain stable. In Q2 2024, the nationwide unemployment rate was 6.9%, down from 7.2% in the previous quarter but up from 6.4% in the same period last year, according to the Central Statistical Bureau of Latvia. This is much lower than the country's jobless rate from 2009 to 2012, which averaged 17.1%, then fell to 8.5% from 2013 to 2023.

Inflation eased to 0.7% in July 2024, down from 1.4% in the previous month and 6.4% in the previous year. This is also far below the record-high inflation of 22.2% seen in September 2022. Inflation averaged 1.5% annually from 2010 to 2021.

Latvijas Banka expects overall inflation to average 1.5% this year.

On January 1, 2014, Latvia adopted the euro. Then in July 2016, the country officially became the 35th member of the prestigious OECD.

Sources:

1. Standard-type apartment market overview, July 2024 (Arco Real Estate): https://www.arcoreal.lv/
2. Housing market report 2023 (Latio): https://latio.lv/
3. About the Housing Guarantee Programme (Altum): https://www.altum.lv/
4. Baltics Real Estate Market Report 2024 (Ober Haus): https://www.ober-haus.lt/
5. Addressing Affordable and Sustainable Housing in Latvia (The Baltic Times): https://www.baltictimes.com/
6. Residence permit in Latvia (Baltic Legal): https://www.baltic-legal.com/
7. Number and floor space of new dwellings commissioned by region, city and municipality (Central Statistical Bureau of Latvia): https://stat.gov.lv/
8. Housing (Central Statistical Bureau of Latvia): https://stat.gov.lv/
9. Gross rental yields in Latvia: Riga and Jūrmala (Global Property Guide): https://www.globalpropertyguide.com/
10. How to Buy Property in Latvia as a Foreigner (Global Property Guide): https://www.globalpropertyguide.com/
11. Key ECB interest rates (European Central Bank): https://www.ecb.europa.eu/
12. Latvia GDP Annual Growth Rate (Trading Economics): https://tradingeconomics.com/).
13. Republic of Latvia: Staff Concluding Statement of the 2024 Article IV Mission (International Monetary Fund): https://www.imf.org/
14. Economic forecast for Latvia (European Commission): https://economy-finance.ec.europa.eu/.
15. Latvia Government Budget (Trading Economics): https://tradingeconomics.com/
16. Unemployed persons and unemployment rate by age group and sex 2002Q1 - 2024Q2 (Central Statistical Bureau of Latvia): https://data.stat.gov.lv/
17. Latvian central bank's revised forecasts show slow growth (LSM): https://eng.lsm.lv/.
18. Latvia Inflation Rate (Trading Economics): https://tradingeconomics.com/
19. Monetary policy decisions (European Central Bank): https://www.ecb.europa.eu/