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Monday 16.07.2018 | Name days: Hermīne, Estere
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Economic Diary of Latvia. Housing to become cheaper next year

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUNext year, the average growth of housing prices in Latvia will likely become negative, experts believe. The reason for this is that the government has reviewed its policy on residence permits in Latvia.

The rise of housing prices in Latvia began in 2011, when amendments to the Immigration Law provided foreigners with the opportunity to receive residence permits in Latvia by buying real estate properties. In certain segments price growth rates had exceeded pre-crisis figures.

However, after the more recent amendments to this law had come into force this September, it has become harder for investors to receive residence permits in exchange for purchase of real estate properties. As a result, the number of non-resident customers has basically come close to zero. On top of that, deputies of the 11th Saeima had also approved amendments to the law that provide a halt on the issue of residence permits until the end of the crisis in Ukraine.

This resulted in a decline in the number of deals with non-residents. This will likely cause a decline of prices in the most popular segments, believes Citadele Bank Private crediting department Baiba Tetina.

According to her, prices are expected to stop their rise in the near future. There may even be a decline in prices in segments of the market where residents make up the majority of buyers. The reason for these changes is the will to introduce a principle of handing over keys in crediting. His means the person who has taken a loan can hand stop payments by simply handing over real estate properties to the crediting institution.

SEB Bank had reviewed conditions of providing mortgage to clients at the beginning of October. Even now it is clear that the availability of mortgage options has reduced significantly – compared to the September, the number of mortgage loans issued in October had reduced by 50%. ‘There is a possibility of mortgage no longer being available outside of Riga and several other large cities. This is because of low demand on real estate and high risk level even if the customer can afford the first 50% instalment,’ – says member of SEB Bank management Ieva Tetere.

Swedbank also provides mortgage loans, but only if the customer can afford the first instalment of 30%.

Take quality over quantity

Information from the Central Statistical Bureau of Latvia regarding labour market changes in Q3 2014 points to a decline in the proportion of job seekers among economically active residents aged 15 to 74 from 10.7% to 10.6%.

Swedbank senior economist Lija Strasuna explains this dynamic with a decline of working-age population as a result of emigration and negative demographic trends.

Because of entrepreneurs’ caution, new jobs are created at an insufficient rate.

The bank believes the aforementioned factors have led to a 2% decline in the number of working people in comparison with last year. Because population decline progressed slower than it did last year, the level of employment in Latvia has slightly increased – up to 59.3% of working-age population (59% last year).

The decline in the number of employed persons in the country may slow down consumption rates of households and Latvia’s economy in general, warns the expert. According to her, production output serves as Latvia’s main growth engine this year. A smaller number of employees can now produce more than they could last year. This creates a foundation for wage growth.

With that, however, the situation differs among industries. For example, there has been a decline noted in Latvia’s processing industry. This may be related to the continuing process of optimization and replacement of workers with machinery. In the segment of transport and tourism, on the other hand, there has been an increase in the number of employees. This is in spite of the decline of demand from Russia. Employment remains stable in internal trade. After growth in the second half-year of 2013 and beginning of 2014, construction sector demonstrates a decline in Q4 of 2014.

There is currently no reason to expect a recovery of employment growth, especially in relation to uncertainty and cautiousness of entrepreneurs because of the unstable geopolitical situation, believes Strasuna. Experts do not see any reasons for mass lay-offs as well. It is likely that the proportion of job seekers will continue to decline below 11%.

Minimum wage is a matter up for interpretation

According to latest legislative changes, minimum wages in Latvia are to be increased by EUR 40 starting with January 1st, 2014.

However, employers are likely to reduce the burden on some of the workers, so that it is not necessary to increase their wages, believes Chairman of Latvian Trade Unions Peteris Krigers.

‘We have received such signals. We have not merely received such signals; we know this is how it is going to be. There had been entrepreneurs that optimized their expenses in the last year’s increase of minimum wages – they transferred their employees to part-time shifts or had introduced contracts. There are different ways of solving such problems,’ – he said.

Krigers did not take it upon himself to predict how many employed persons can expect wage rises. He did say this will likely affect small and medium-sized enterprises.

When asked if the government’s decision to increase wages has any weight and whether or not it will accomplish what it is expected to do, Krigers said it will apply to employees of state enterprises and state institutions.

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