In medical terms, Latvia’s real estate market is currently sick. It will only recover once all transactions are carried out using actual market price and those whose expectations are overestimated – drop out, said real estate specialist, member of Latvian Real Estate Association and board member of Real State Jurmala Igors Danilevics.
He notes that the state of the current real estate market is uncertain: whether or not it is a buyer’s or seller’s market. When setting prices, project owners do not always fully understand the requirements of the end consumer. Buyers, on the other hand, are often unable to find appropriate offers even though there are many on the market. He mentioned Jurmala, where a lot of apartments were built during the last real estate boom (there are around 700 apartments available there) without taking into consideration the actual needs of buyers.
«There is no need to artificially create anything,» – emphasized Danilevics. He added: «What’s the point of producing ten tons of potatoes if the market realization volume is only five tons? Even now construction takes place on such a large volume that it will not be possible to sell everything in the next five years. Although statistical data shows that our residents fall behind the average European housing volume index, it is important to keep in mind that many do not buy properties because of many different reasons. It does allow the rent market to develop. The grey sector’s dominance on the rent market, I believe, is because SRS puts all economic pieceworkers in the same bag, whereas residents fear too much bureaucracy.»
The expert points to the problem: houses that were built at the beginning of 2000 remain ownerless and have since become outdated. They now require investments to get them back into shape. Real estate companies of banks also have many objects with questionable value and uncertainty about their future. «I believe those properties will have to be admitted illiquid around 2018, and companies will have to make decisions to write them off as losses,» – said the expert.
«Transactions are currently being carried out with non-residents. The negative emotional atmosphere has disappeared. Now each client has their own story and reason for buying real estate in Latvia. Rational approach is noted more and more often: whether it is an investment for future renting of the property or and investment in a future home. Lately, however, the general attitude towards non-residents has changed: many restrictions have become insurmountable for eastern non-residents even with the cleanest biography and the biggest desire to buy. A situation has formed when we sit on our portfolios waiting for rich investors. How long will we keep waiting? What if the rich foreigner never comes?» – Danilevics rhetorically asks. Looking towards the future, the expert says he sees no reason to expect groups of investors lining up to buy real estate in Latvia at current prices.
«It is positive that we can now discuss the local buyers once again provided with mortgage loans. Unfortunately, there aren’t many such transactions. Lately the market has become somewhat active. This activity is ensured by interest rates – around 2.5% annually. The biggest proportion of transactions among local buyers is noticed in the group under EUR 100,000. We have noticed that local buyer predominantly prefer economic housing offers,» – Danilevics concluded.
The main components that currently influence the real estate market include taxes, legislation and crediting, said the expert. «One important moment is the review of the property tax. There is a rule that the State Land Service takes into account the value of the piece of property for the past three years when calculating cadastral value. However, we have noticed that the service does not keep up with market changes: it was either too slow and did not collect taxes when it could or the value level was established as high when it had actually declined. The single property matter is very important: I believe legislators should protect it,» – the expert explained.
He does not believe wages will grow significantly in Latvia in the next couple of years. He also does not expect groups of investors to come from foreign countries. «The current activity on the market is minimal. Does anyone really analyse the supply/demand situation? Perhaps this activity on the market is normal. I believe reality has finally set in as to what the situation on Latvia’s real estate market should be, considering the size of the country, its population size, geographical location and economic situation,» – said the expert.