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Wednesday 22.11.2017 | Name days: Aldis, Alfons, Aldris

Economic Diary. Tenants to be forced to pay taxes

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The dramatic events currently transpiring on Cyprus were, without a doubt, the main intrigue of this week. Even though Cyprus is a long way from Latvia, our fair country felt the aftershock nonetheless.

ECB sends a signal

Recently, many people were saddened by the news that the European Central Bank (ECB) has sent a signal to the Latvian government. The point of the signal was simple: dear friends, do not accept Russian money coming from Cyprus. Initially, the information about pressure being used against Latvia in regard to the problems of the Mediterranean state was distributed by Reuters with reference to an unspecified head of one of the central banks in the Eurozone. According to the resource, Latvian authorities were told not to provide ”asylum” for Russian money if Latvia aims to join the Eurozone. Prime Minister Valdis Dombrovskis and Finance Minister Andris Vilks announced they they did not, in fact, receive such a warning from ECB.

“Statistics clearly show that our country is not the main destination of the money coming from Cyprus. An approximate amount of 1.7 billion EUR was transported out of Cyprus in January. The total volume of non-residents’ deposits in Latvian banks from all countries increased by almost 130 million EUR for the same period. With that, there is no reason to believe the current tendency could change, and a large volume of funds would flood Latvia,” – Finance and Capital Market Commission press-secretary Laima Auza reports.

According to her, Latvia should not be put on the same level as Britain, Luxembourg and Switzerland in terms of being a financial centre. Furthermore, our country has a rather strict regulation of the banking sector. “We do not predict any significant changes in the flow of non-residents’ deposits with the situation in Cyprus,” – the Prime Minister concluded.

Tenants to be “whitened”

While the PM and other responsible ministers were busy with the whole Cyprus money ordeal, the Economy Ministry decided to start regulating tenancy – the only segment of the real estate market that has been demonstrating stable growth rates during the last several years.

This new bill will need to create a new legal base for relationships between tenants and landlords. For example – it is planned to create a special rent contract registry, which will include information about all contracts, sizes of rented areas, numbers of tenants, terms, etc. This is the government’s plan to eradicate the back rental market and force apartment owners to pay taxes.

The new law is also called to relieve the owner of the rented premises from the necessity to offer tenant a different apartment.

There has been a stable increase of the prices noted in the rental market over the last several years. According to the outlook of Nira Fonds, the rates are expected to rise by 5% this year.

More adverts everywhere

One other market that has recently managed to demonstrate growth was the advertisement market. The total volume of the advertisement market of Baltic States reached 242.7 million EUR last year. This volume is 1.2% larger than it was in 2011, according to the data from TNS Latvia.

Latvia became the leader in the percentage of the increase of advertisements in the country’s mass media sector. Its market increased by 3% and reached 70.9 million EUR. Neighbouring countries, however, increased their money equivalent: Lithuania’s industry reached 99.4 million EUR (+07%), that of Estonia – 72.5 million EUR (+0.3%).

Data from TNS also note the increase of annual investments in the advertisement market per capita. Latvia’s and Lithuania’s indexes show 34.7 EUR and 33 EUR respectively. Estonia holds the bar in this regard – 54.1 EUR per capita.

According tot he manager of TNS marketing registry Oskars Rumpeters, retail trade was the most highly advertised industry in Latvia (Maxima, Rimi and Linstow), followed by the mobile network communication industry (LMT and Tele2), and pharmaceuticals (Noveartis, Sandoz and Berlin-Chemie/Menarini).

Four in one

Now then – banks. Following the Easter holiday, the Latvian government will have to decide the judicial form of the future Institute for Financial Development. The concept provides for uniting four organizations under IFD. Each of them currently supports business in their own way: Mortgage Bank issues credits to micro-, small- and medium-size companies; the Latvian Agency for Guarantees helps develop venture capital funds and provides guarantees; the Agricultural Development Fund helps rural entrepreneurs; the Investment Fund concentrates on ecological projects.

The Economy and Finance ministries are unable to agree as to who will manage this organization. FM is responsible for the Mortgage Bank, LAG. On top of that, it seems as though none of these organizations are prepared to share their authority with colleagues.


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