Latvia is still recovering from the financial crisis. There is a lot of potential in the country, and the inhabitants of the capital Riga are now looking for apartments in the suburbs.
YIT’s operations in Latvia started in the late 1990s when it acquired an Estonian construction company which had a subsidiary in Riga. Despite being neighbours, Estonia and Latvia have very different housing markets.
“YIT Latvia’s main business segment is residential construction. The local company has also carried out contracting on a small scale,” says Tom Sandvik, Senior Vice President, Central Eastern Europe Division.
Andris Boze, Managing Director of YIT subsidiary Celtniecība SIA, sees a clearly growing lifestyle trend in Latvia.
“People are now moving from Riga’s city centre to the suburbs. New houses, green areas, fresh air and good opportunities for outdoor activities are clearly attracting people more than before,” he says.
There are a lot of opportunities for builders in Latvia. Most of the buildings in the country date from the Russian era. Renovation of the old buildings is such an expensive undertaking that it may be best to simply build new ones instead.
“I am very hopeful about our development. It lags a few years behind Estonia, but I am confident that 2016 will be a clearly better year,” Boze says.
A challenging market
According to Tom Sandvik, Latvia is the most challenging CEE market area. There is no clear long-term perspective that you could trust. It is difficult to invest because building permits are very hard to obtain. Even with a valid building permit, it is possible that neighbours, for example, bring the construction work to a halt, making complaints without any factual basis or legal merit.
Latvia suffered severely from the financial crisis. Liquidity was almost annihilated and one fifth of the country’s GDP vanished in a year. Radical budget cuts were made, which improved the health of the national economy.
“Riga is a transport hub and the largest city in the Baltic countries, twice as big as Tallinn. It has a big harbour, the biggest in the Baltic countries, a centrally located airport and excellent rail connections. Riga has potential, but its economy after the financial crisis has not developed as favourably as in the neighbouring countries,” Sandvik continues. The reasons for this include the economic sanctions imposed by Russia, unpredictable legislation and extremely bureaucratic building permit processes.
Latvia has a highly fluctuating and unbalanced political life which lacks a consensus-oriented approach. When political power changes hands, the changes can be drastic and have long-lasting effects. Recent years have seen many changes in legislation which affect the property and housing markets.
“The mortgage legislation, for instance, was amended just a year ago. The changes significantly reduced housing demand. Now they have taken some corrective measures, and the situation is gradually improving,” Andris Boze says.
The new legislation has driven away most foreign investors, who account for about thirty per cent of the housing market. Earlier, a foreigner who bought a property in Latvia was automatically given a residence permit. A holder of a residence permit is allowed to travel in the Schengen Area without a visa.
In particular, people from China, Ukraine and Russia have bought properties in Latvia. The minimum investment required for a residence permit was EUR 140,000. The same arrangement is in place in Portugal and Spain, but the minimum investment required by those countries is many times bigger. Latvia has now increased the minimum investment to EUR 250,000, which has reduced housing demand on the part of foreigners.
Banks selling apartments
The financial crisis in 2009 led to a wave of bankruptcies, with the repercussions still felt on the housing market.
“There were many who could not pay back their loans, so the banks took over their apartments and even entire building projects. Banks are offering these apartments at very competitive prices. The apartments are sold without warranties, but the low price attracts buyers.”
Boze estimates that all these bank-owned apartments will be sold by the end of 2016, after which the situation will return to normal. That would be welcome, as YIT has several projects at the advance marketing phase.
“I am very optimistic about economic growth, as are the official economic forecasts. However, the average income in Latvia is still very low. It has decreased from EUR 1,000 to EUR 700, which inevitably affects our business as well,” Boze says.
Apartments in Riga
- Midtown Apartments is located in the historic centre of Riga. The neighbourhood is elegant and peaceful and the city centre is only a few steps away. The building has a total of 67 apartments ranging from 35 to 99 square metres. Each apartment has a French balcony on the street side and a bigger balcony on the courtyard side. There is a parking garage in the basement.
- Bikerziedi’s fifth apartment building in the district of Teika was completed last summer. The building has a total of 65 apartments ranging from 44 to 88 square metres. Each apartment has a balcony. The yard is lit and well taken care of. There is a parking garage in the basement. Teika is one of Riga’s greenest neighbourhoods. The area has good infrastructure, and the public transport is excellent. A maintenance company takes care of the practical affairs in the building.
- The first building of Priedes is under construction. Priedes is situated in a peaceful location in Riga, next to a pine forest. A recently built bridge provides good connections with the city centre. Priedes is planned to comprise four five-storey buildings. Each building will have forty apartments ranging from 49 to 64.6 square metres. During the construction phase, it is also possible to combine apartments into one bigger apartment. There is a parking garage in the basement and private parking spaces in the yard. The site is beautiful, complete with a lot of greenery. A maintenance company takes care of the day-to-day affairs in the building.
Latvia in brief
Latvia’s history has been closely connected with the histories of Estonia and Lithuania. The capital Riga has always interested rulers. Since the 17th century, it has been under the rule of Poles, Germans, Swedes and Russians.
National awakening started in the early 19th century, and the country became independent in 1918. The Soviet Union, however, occupied the country in 1940 and established the Latvian Soviet Socialist Republic. Together with Estonia and Lithuania, Latvia restored its independence on August 21, 1991.Latvia became a NATO and European Union member in 2004. Ten years later, Latvia joined the Eurozone.
Population: 2.013 million
Capital: Riga, 695,539 inhabitants