Latio: no change of average apartment prices in July
Riga, August 7th, 2009
Information presented by Latio
According to Latio market report data, the average price of apartments in Riga in July has maintained the previous month’s level – 490 EUR/m2 – for the first time in two years. The experts of Latio believe this is a confirmation of price stabilization in the apartment market;however, it is still too early to talk about a change of trend. It does not rule out a further decline in prices. As previously predicted by Latio market analyst Māris Grīnbergs, the lowest point of apartment prices will be reached around October. ‘’The real estate market will recover even before the recovery of the national economy,’’ says Grīnbergs.
The decline of apartment prices relatively to the maximum (1720 EUR/m2) in the April and May of 2007 is 71.51%. At present, prices lie at the level of 2003–2004.
Some changes in the behavior of market participants can be observed in July. Many buyers recognize that they can finally afford to purchase an apartment at the current prices. Although the activity of buyers has grown, the selection is more limited due to the decline of offer in the previous months – therefore, it may not be easy to find the desired apartment. ‘’There is a shortage of good offers. It seems that the lowest price point for liquid objects is already behind us,’’ says Inese Krieva, head of Latio Imanta department. Regardless of the much lower offer and limited resources, the buyers’ requirements are still at the previous level – characteristic of a declining market.
Sellers now more often refuse to give a discount in the amount requested by the buyer, or state right away that they will not budge on the price. Head of Latio Purvciems department Rita Šulmeistare tells that many sellers are currently unwilling to put their property on the market, and are waiting out for now. Every seller may have their reasons and arguments;among them – the low price that the buyers are willing to pay. Therefore, the available offer mainly consists of less-liquid objects that do not interest buyers today due to the location, conditions, price and other reasons. Buyers now pay more attention to the technical condition and project of the building, as well as to the monthly expenses for utilities and maintenance, and consider whether these costs are adequate to the property’s quality.
There is a sufficient offer of new projects, but the prices remain high, as well. The buyers are interested only in those new projects that appear on the market at the lowest price and have adequate quality. The new projects make up 20% of the transactions entered in the Land Register. This has been a constant trend for several years.
Head of Latio valuation department Diāna Štāle describes the situation in the real estate market during the past months as stagnating with respect to the number of transactions. The amount of dwelling space transactions registered in the Land Register in Riga has not grown, and remains at an unchanged level ever since the beginning of the year.
Transactions are still mainly done in cash. There are potential buyers that are willing to use a loan, if their income allows this and the loan makes up only a fraction of the purchase price. Foreigners are starting to look for properties in Riga at low prices and display interest in apartments, as well. Transactions usually happen with the sellers understanding their situation and the state of the market and conceding to the price offered by the buyer. Owners are ready to sell their property due to even small credit obligations, if they feel they won’t be able to manage their payments.
An increase of offer can be observed in the rental market. The rental prices of apartments continue to fall. The experts of Latio predict a larger decline in the autumn, along with the heating season. The rental prices for apartments have dropped below 100 LVL per month plus utilities. In the new project buildings there is demand for one-bedroom apartments with a parking lot at a monthly rental of around 250 EUR.
The demand for buildings plots in Riga city is very low, however transactions are being made. The largest demand is for plots in relatively high-prestige private house districts. An increased offer of plots separated from territory adjacent to an already existing private house has been observed.
The average building plot price in the housing districts of Riga is 35 000–60 000 LVL. In exclusive districts, such as Mežaparks, the price level is 140–250 LVL/m2, depending on the plot’s location and size.
Considering the rapid fall of prices and the large offer of private houses, the price of a finished private house today is lower than the building cost of an equal house. Therefore, currently it is more efficient to purchase a finished building than to construct one anew. The sharpest price decline has been observed for relatively large houses, exceeding 300 m2. Interest is very low in the segment of unfinished buildings and row houses. Preference is currently given to average-sized, high-quality, fully-completed private houses.
An increase of the offer of exclusive private houses has been observed lately, with prices significantly lower than last year. For example, several exclusive private houses that were offered in the market for 700 000–850 000 LVL last year are currently available for 300 000–400 000 LVL. Demand still exists for these types of property, and potential buyers, using the current situation, can negotiate a significantly lower sale price with the buyer, with a reduction of up to 30% from the initial offer.
Taking into account the large offer of new private houses, there is currently very low interest in Soviet era houses, as the reconstruction costs of such buildings often exceed the value of a new private house. Mostly these types of buildings are purchased for their location, with an aim of later tearing them down.
There has been a rapid increase of private house rental offer. Such transactions are made very rarely, usually with fully-completed, high-quality private houses in good location.
Overall, the prices of private houses in Riga and Riga district have fallen by 40–60% on average, compared to the first half of 2007.
To order a more in-depth market analysis, call (+371) 67032300, e-mail latio@latio.lv, or visit the Latio central office in Riga, Raiņa Boulevard 11.
