Latvian real estate market overview: residental premises and crowdfunding
Estateguru investors have opportunity to invest not only in Estonian, but also Latvian and Lithuanian projects. While operating in Latvian market (almost 2 years already), we have funded almost 3 000 000 EUR for perspective new projects and businesses and our team is continuing to work actively to offer more investment opportunities in all the Baltic States.
In order to promote understanding of the market situation in Latvia, in this blog post we have compiled statistical information on current developments in the residential housing stock in the capital city of Riga, as well as have learned from experts in real estate about the crowdfunding trend to date and it’s future in Latvian market.
Residential real estate supply
According to the reduction of newly built apartments in 2016, the forecasts and projects started in 2017 indicate an increase in supply – in the year of 2016, 1250 apartments were built, but the forecasted number of new residential areas in 2017 is 1,500, according to Ober-Haus’s annual report on the Baltic real estate .
“Developers are offering new apartments while they are being constructed and buyers are actively reserving these; some projects are almost sold out before they are even completed, for example developments by Hanner, Bonava, Merks and others.”
Currently, the development takes place in different territories of Riga and most actively outside the city center – Skanstes district, Kipsala, Kliversala and New Teika. The common factor for all these places is the wide opportunity to successfully combine business and residential spaces, complementing each other rather than suppressing it, creating a well-developed surrounding infrastructure that is attractive for businessmen as well as residents of the city. Developers are increasingly focusing on creating high-quality econom-class housing for local people and young families, optimizing housing plans and maximizing the use of small areas, making housing affordable.
Ober-Haus experts in the market review admit that the price level in the apartment segment has increased, with the largest increase observed in the secondary market – housing in residential districts, the price of which reaches 550 EUR – 1000 EUR per square meter at the beginning of 2017 (most of the deals took place in the Soviet time standart type homes).
Prices of new projects per square meter in residential areas in the beginning of 2017 also increased by 3-4% compared to the beginning of 2016 – from 1200 EUR to 1800 EUR, and in the central part of the city (including the Old Town) housing can be purchased for 1700 EUR / m2 – 4000 EUR / m2, of course, the market also offers exclusive housing projects with luxury-class apartments in the price of up to 6000 EUR / m2.
With the growth of consumer income level in the country, there is no expected price decline in the near future.
In order to gain a wider picture of the real market situation at the moment, we interviewed real estate agent and partner in Corvin Real Estate agency Alexander Sviridov, who has been in the industry for over 19 years.
EG: What types of RE objects are currently most demanded from customer point of view, and to what developers are paying most attention when designing new projects?
AS: “Currently, the most activity in the Latvian market is happening in the price range up to 150 000 EUR, this is exactly the segment where all the locals are making demand. In order of that, most of new development projects are designed taking into account desires and buy-ability of locals. Of course, when implementing a project, the developer tries to achieve the maximum quality and price ratio with the available financial resources in order not to exceed the sale price that can be afforded by the local buyer.
We are very glad that today’s technology is becoming more and more affordable – today, economic class property buyers can enjoy residential technological solutions that 10 years ago we saw only in business and luxury apartments.
Speaking about the plans and apartment areas – the most demanded are 2 and 3 bedroom apartment with an area of 60-80 m2. There is also a great demand for one-room apartments in the most popular districts and center in Riga, which can be rented out easily. At the moment, demand in this segment exceeds supply and, given the steadily rising cost of construction, it is unlikely that in the near future we will be able to observe a sharp increase in offer. “
EG: What potential can you see for the development of the Latvian market to other Baltic states?
AS: “Latvia still sees market disbalance that are not likely seen in Estonia or Lithuania. Latvia is the only one among the Baltic States that has experienced a “residence permit boom” in the property market. Thanks to this opportunity many high quality residential projects were developed in Riga and Jurmala, as well as many of the existing houses were renovated and refurbished. When working with a residence permit seekers as the target audience, the developer’s profits were unbelievably higher than when working for local buyers, they did not have to save on architectural solutions, materials and technology. Also it is much more complicated and longer process to get a construction permit in Riga than in Tallinn or Vilnius, which means that new projects can not be realized so quickly and the market in this segment lags behind the neighboring countries. However, if many experts believe that the Estonian market has already reached or is fast approaching its maximum, then we are all ahead. It’s hard to predict what will happen after 7 years, but in 2018 and 2019, prices and demand will definitely rise. “
Crowdfunding for projects
With the launch of the crowdfunding p2p platforms in Latvia, the need for this kind of financing for Latvian residents, property developers and entrepreneurs has often been discussed.
So far, we have funded real estate development projects in Riga, Riga region, Liepaja and Valmiera on EstateGuru platform, as well as attracted funds for business – increasing operating capital and expanding business.
EstateGuru clients use short-term loans mostly because fast money receiving process, easier bureaucracy procedures and flexible repayment terms, so they can quickly get funding for the project and can continue to grow and develop.
The trend of crowdfunding and need for such a service in Latvia were asked to comment Aigars Šmits, the chairman of the board of the leading real estate company ARCO REAL ESTATE.
EG: What’s your opinion on crowdfunding to real estate projects, do you think that this kind of service has future in Latvian RE market?
AŠ: “I have already discussed this topic publicly many times and will say it once more – I believe that this is a good opportunity in cases where capital is not enough to start a project or development. In my opinion, crowdfunding is merely an activity-enhancing instrument. Meanwhile, this is a rather new way, which, as you know, has ups and downs in every economy and business. I have to say that I have not heard of default investment cases in Latvia so far, so everything looks white and fluffy at the moment. I wish, as they say, to keep your cautious strategy in project investment. “
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