Should You Invest?
Economic growth in Latvia has been one of the strongest in
Europe, with average GDP growth between 2004 and 2006 a very
healthy 10.4%. Throughout 2006, growth surged to 11.9% falling
slightly to 10.6% in 2007. The unemployment rate has continued to
fall from 6.1% to 5.9% in 2007 and real GDP per capita has
more than doubled since independence meaning a better standard of
living for Latvians.
As with all of the Balkan area, Latvia has suffered from
unsustainable growth rates as well as legislative changes
introduced by the government to limit multiple property ownership.
Consumer confidence in the market has fallen recently and the
effects of the credit crunch are evident in the decreased number of
transactions taking place. Historically Latvia has proved
incredibly popular with tourists and investors alike and once the
country has re-stabilised it is likely to regain its popularity;
until then, properties are proving hard to sell making it a
volatile environment in which to invest.
- EU entry furthering GDP growth
- Adoption of the Euro by 2012 should stabilize
currency
- Easier access to competitive mortgage rates
- Healthy tourism
Rental Yields
Average rental returns have fallen since 2004, from 7.85% to an
average of 5.04%. These yields are not poor; however, when
the increasing number of new build apartments and rise in long-term
interest rates are taken into account. However, investors are
advised to be cautious as the rental market is unpredictable, with
few solid predictions available.
Price History
Property prices in the city centre of Riga between 2004 and 2006
rose from 1,264 euro per square metre to 3,011 euro per square
metre, a massive 138% increase in only two years. Rents have also
risen but not as dramatically, from 8.20 euro per square metre to
approximately 12.64 euro per square metre, an increase of 54%.
More recently, house prices have been falling in Latvia's
capital city Riga with a 3.5% drop recorded in June 2007 after
a 1% drop in the preceding month. These latest statistics do not
reflect the country's previously spectacular growth which
earnt it the crown of Europe's strongest performing housing market
in 2007. In just twelve months though, Latvia slipped from
pole position in the global house price index (compiled by Knight
Frank) to land in twelfth position, with price inflation at just
10.2%, a huge drop from the 2006 inflation rate of
56.9%
Transactions have fallen but not too severely whilst building
costs, land prices and rents are continuing to rise.
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