Latio: prices in the apartment market to hit the bottom
Riga, 09 July, 2009
Information presented by Latio
‘’With the decrease of offer, the options of potential buyers are being limited. The prices are still falling, however the fall is slowing down as well. If this tendency continues, the prices of apartments in September-October of this year can be expected to hit the lowest point at approximately 450 EUR per square metre,’’ notes Latio market analyst Māris Grīnbergs.
Activity in all segments of real estate has been falling for the past two years. The amount of transactions in the housing market in Latvia has fallen by more than three times on average. Elsewhere in Europe an unprecedented fall of the prices of properties in Latvia has been seen as well.
After the beginning of the fall of the average price of apartments in Riga in June of 2007, it experienced a freefall around the end of last year. During the past few months, the rate of price decline has been slowing down. The average price of apartments in June compared to May has fallen by 5%, to 490 EUR / sq. m. Compared to June of 2008, the price has fallen by 59.2% The drop from the maximum price level is 71.51%. The current average price of apartments lies at the level of 2003-2004.
With regard to each district’s particular location and characteristic project buildings, the most expensive apartments are available in the districts of Mežciems, Āgenskalns, Purvciems and Ziepniekkalns. The cheapest apartments – for instance, one-bedroom Lithuanian project apartments or Khrushchev era apartments – are available in Bolderājs and Ķengarags at prices below 13 000 EUR.
The rental rates of apartments remain at their previous level. For example, a two-bedroom apartment without any particular interior decoration work done may cost 100 LVL per month. The monthly rental rate of a similarly-sized, furnished apartment in a new project building can be 200 LVL or above.
The amount of apartment transactions entered into the Land Register in Riga and throughout Latvia generally remains at the level of the previous three months. Stabilisation of the amount of transactions in the private house and land lot segments has been followed by the apartment market in Riga during the past half-year.
The public offer of apartments in Riga is continuing to fall. ‘’The tactic of waiting for an even cheaper price cannot be used anymore – someone else will buy it first. If the trend continues, the buyer’s market, where the offer exceeds demand, may transition into a seller’s market. This, in turn, is a sign of a slowing of the price fall. I believe apartment prices will hit their lowest point in the autumn of this year,’’ predicts Latio market analyst Māris Grīnbergs.
Data of Latio’s housing market report show that the amount of transactions with lots for private development, for example, in Riga district, has fallen fourfold compared to the peak of the land market activity in the spring of 2007. The fastest decline of prices can be observed in locations where active parcelling of lots has been carried out and further development is planned. The number of land transactions generally remains at the level observed since the end of 2007.
The largest interest exists in lots at a price of 50-70 EUR / sq. m. in good location and with utilities. Lots without utilities, on the other hand, are still not in demand.
Regardless of the significant fourfold decline in the number of transactions, the prices of private houses have fallen by 33-45% depending on the location and technical condition. Like in other segments, where the offer of high-quality properties in good locations is falling, good private houses are disappearing from public offer. The owners of private houses are not willing to sell their property at the prices offered by the potential buyers.
Due to the cautious approach of credit institutions towards crediting purchases of properties, particularly land lots, most transactions are carried out in cash. Buyers who wish to invest their free funds are interested in purchasing lots in the 15000-25000 LVL range near Riga regardless of size, and in the 5000-15000 LVL range in more-distant rural municipalities of Riga district.
‘’In June, there remains a large proportion of buyers who are able to pay without using a loan. The majority of transactions are a result of foreclosure cases,’’ points out Vija Gailīte, head of Latio’s apartment and private house sales department. Latio sales experts note that along with the fall in offer, many buyers spend a considerable amount of time – two to three months – looking for a suitable property, and they show interest in every new offer available. However, after finding the right property, the buyer still asks the seller to lower the price by 10-15% out of inertia, and thereby loses the chance to purchase, as the set price is acceptable to another buyer.
‘’After the dramatic decline in prices, interest in purchasing real estate is being shown not only by the local inhabitants, but also by foreign buyers. The owners of real property should consider not only the option of sale, but also of lease, which is common in other countries. With the assistance of good advisors, it is possible to smartly lease out a property and participate in development projects by contributing a plot or its part, and thereby retaining the real estate ownership rights and control over the property,’’ underlines Diāna Štāle, head of Latio’s valuation department.
The beginning of price corrections in the real estate market – which for a short period was one of the driving forces of economy – was also the beginning of the cooldown of economy. During this time, no structural reforms of national economy have been carried out, and there is no industry that could warm the economy back up in the nearest future. As pointed out by Latio market analyst Māris Grīnbergs, real estate may become the heater of economy. In some segments, the prices of properties are below economically-justified levels.
Mortgages used to be streaming tens of millions of lats into the economy every month, while also facilitating a transition to legally salaried workforce and payment of taxes. At present, banks are withdrawing 40-50 million lats from households every month.
Banks are establishing affiliated companies – foundations for management of repossessed properties, and they will most likely keep possession of these properties for the nearest future, thereby slowing the fall of prices. Considering the large proportion of these properties, credit institutions control and directly affect the market situation both in an increasing and declining market.
More detailed market analysis is available from real estate company ‘’Latio’’ at Raiņa Boulevard 11 or by calling (+371) 67032300 or e-mail latio@latio.lv .
