Latio: apartment price index in Riga unchanged during the summer
Riga, September 4th, 2009
Information presented by Latio
According to Latio market report data, the average apartment price in Riga in August had maintained the price level of June and July – 490 EUR/m2. After two years of monthly fall of prices, the apartment price index has remained unchanged during the three summer months. 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.
In the center of Riga, transactions are made at an average price of 800–850 EUR/m2 for apartments in average condition. In Old Riga the lowest price level is currently around 1500 EUR/m2.
In August, large apartments saw a small decline in prices, while the prices of one- and two-bedroom project apartments in individual city districts experienced a slight increase. More significant pricing differences appear between districts with high and low offer of apartments of a particular size.
There is a particular shortage of small, renovated apartments on middle floor levels, in high-demand project buildings, and therefore buyers in this segment have very limited choice. If such apartments are made available at the current market prices, they are quickly purchased. Consequently, there are cases when the apartment owners withdraw the sale at the agreed price, fearing that they’ve set the price too low, and attempt to raise it. Then, in turn, it is the buyer who withdraws from the deal.
‘’We are seeing a continuation of the previous months’ tendency to mainly use cash and avoid the involvement of credit resources for purchase of dwelling space. The buyers recognize the positive aspect of this situation – the prices of dwelling space are so low that property can be purchased by those that have saved up the necessary amount. Often such buyers do not have experience in real estate, and as cash transactions are less secure than ones involving a bank (loans), the importance of services offered by professional agents and companies is growing,’’ believes Vija Gailīte, head of the apartment and private house sales department of Latio.
Some potential buyers decide against purchasing real estate due to the overall economic climate, even in cases when they do have sufficient cash savings. People are worried about the future and do not wish to be left without a reserve.
If, in expectations of a price increase, banks will retain foreclosed apartments and not put them on the market, the hope of many buyers to purchase foreclosed apartments at very low prices will not be fulfilled. The attained stabilization of apartment prices may be damaged by radical events in the society adverse to the economy and real estate market.
Apartment rental market in Riga
The rental prices in the market continue to decline. As in every autumn, activity is observed in the rental market of cheap apartments due to the new study year. The price of a typical two-bedroom apartment in the housing districts of Riga has dropped to 80 LVL per month plus utilities. The rent of a single-bedroom apartment is currently around 50–60 LVL per month. Therefore, the trend of the rental price being independent of the amount of bedrooms, as it was a few months ago, has disappeared. This is dictated also by the high costs of the utilities.
To reduce the rental costs, there is a growing number of cases of several students renting a three-bedroom apartment, in contrast to the previous trend of renting one-bedroom apartments. The selection is usually made in favor of areas in the vicinity of universities – the near Pārdaugava, Imanta, the far center, Purvciems.
A three-apartment apartment in good condition in the center can be found both for 300 LVL and 700 LVL per month. The rental price even within one building can differ by three or four times depending on the apartment’s technical condition and furnishing. An important factor is the availability of a parking lot.
Currently, to avoid losing a rental agreement concluded earlier, an owner may be willing to cut the rental price by as much as a half. For example, the monthly rental of a three-bedroom apartment in a new project building two years ago was 400 LVL;today – 200 LVL per month. The decisive factor for rent in new project buildings is a favorable location, kitchen furniture and appliances, as well as a parking lot.
Real estate tax
The real estate experts of Latio admit that a real estate tax on dwelling space should have been introduced much sooner before the surge of activity in this field. Today, when the solvency of people is falling and the activity in real estate has dropped, introducing this tax will not stimulate development. Judging the effect and reach of the newly-introduced tax will be possible after adoption.
A more even effect on the real estate market would be achieved by selecting the option of applying the tax equally to the whole cadastral value of a property, in contrast to the option with a threshold of untaxed floor space. Major fluctuations in property prices could also be caused by cadastral value determined inadequately in respect to the property’s location and quality, and consequently an inadequate tax amount – for instance, for high-quality properties in good locations, with a lower established cadastral value, the prices could increase faster than for properties with a higher cadastral value. To avoid rapid fluctuations affected by market activities, the calculation of cadastral value should be based not on the market value, but rather on long-term value, as the experts on Latio have repeatedly explained in the past. Several auxiliary factors must be taken into account in the tax implementation process – a major role in the process of tax calculation will be played by the capacity of the agencies involved in the real estate stocktaking process;the lack of interest on the part of the owners of reconstructed and new buildings to register changes with the respective agencies;and the procedure for collection of unpaid taxes.
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.
