Wednesday, June 27, 2007

Latvian housing bubble, part 1

I might move back to Latvia later this year or in 2008 and I just started researching the real estate market, over Internet and by consulting friends in Latvia.

It's quite expensive. 1 bedroom apartments in Soviet era buildings (built 20-40 years ago) cost from 70,000 to 110,000 Euros (100,000 to 150,000 US dollars). Bigger apartments or ones in newly built buildings are even more. Houses start at 200,000 Euros (260,000 US dollars) and can cost much more if they are in a good location. (I'm not even trying to figure out how much more. I wouldn't be able to afford that on a Latvian salary anyway.)

It's not quite London or New York prices but, according to newspapers, real estate in Riga is already more expensive than in Vienna or Frankfurt. And I've heard stories of people who have sold a run-down house in Latvia and discovered that they could buy a house at a much better condition on the Mediterranean coast of France for the same amount. At the same time, the average income in Latvia is still 4-5 times less than in US or France or Germany. As a result, most of population is completely priced out of the housing market.

It wasn't always this way. In mid-1990s, one could buy an apartment in Riga for 20,000 dollars. The only similarity with today is that it was unaffordable for most people. The incomes were much lower than now and bank credit was almost unavailable. Now, 40-year loans are common, the interest rates are almost as low as in Western Europe. The incomes have increased substantially, except that...

The increase in real estate prices has outpaced that all! Economists are talking of global housing bubble and Latvia seems to be at the forefront of it. The home prices in Latvia have grown by 61.2% in 2006, more than in the any other country in the world. And that comes after a similar more than 60% increase in 2005.

I'll post some more thoughts on the Latvian real estate bubble in the next few days...


Anonymous said...

In 1999, my wife bought a one-room (that means no bedroom!) appartment in Rīga (Purvciems) in an old Soviet-style appartment block for $7000 US. She sold it in 2004 for triple that amount and we used the money to by a two-bedroom flat in a newly-constructed appartment complex in Rīga, also in Purvciems. I understand the new flat has pretty much trippled in value since then, but as you say it is a bubble and god only knows what it will be worth after the bubble bursts and in a few years from now. Nonetheless, we consider we made a wise investment.

The lucky ones are those that managed to buy property in the heart of Rīga in the early to mid-90's...


Latvian abroad said...

You are lucky! I wish I had made such investments at that time.

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