Thursday, July 19, 2007

Latvian real estate/economy update

This is a summary of main economy/finance stories from Latvian language news sources:
  1. According to Ober-haus real estate company, the prices of apartments in Riga dropped 1.5% in June. The prices are still 5% higher than at the beginning of 2007. This is similar to the reports by the other major real estate company, Latio, which I quoted in my previous posts. Ober-haus also notes that the number of apartments for sale has decreased, as some disappointed sellers rent their apartments out instead. As a result, the number of apartments for rent has increased by 20%.
  2. Starting from last Tuesday, people seeking a credit of more than 12,000 lats (17,000 euros ) are legally required to provide their bank with a letter from State Revenue Service that tells the income on which they have paid taxes. The government has done this to decrease excessive lending, particularly to people who hide part of their income from tax service. In the first week, the revenue service has issued 3,800 such letters. Hmm, this sounds significantly more than the number of credits issued by Latvian banks in a typical week... I infer that people were ready for the new law. We'll have to wait for a while to see the effects of the new law and how much it actually decreases the lending.
  3. Parex Banka, one of main Latvian banks, is doing quarterly surveys of Latvian businessmen about the current state of Latvian economy and their expectations for the future (on a 0-100 scale). They report that Latvian businesses are becoming more pessimistic about the future, for the second quarter in a row.
  4. Meanwhile, some parts of Latvian economy are still booming. New car sales in June increased 38.6% compared to year ago. To compare Latvia with Western Europe, the new car sales per million people in Latvia have now reached 39% of German level. This is more than I would expect, given the quite big income gap between the countries. (And a very big change from 10 years ago, when most cars were imported to Latvia were used cars and hardly anyone was driving a new one.)
Developing... I plan to do summaries of this type about once a week or once in two weeks from now on.


Edward Hugh said...


Thanks for keeping this up. The Bank of Latvia apparently has a report around somewhere on movements in the volume of mortgages. I couldn't find it on the English version of the site.

According to the Baltic Times:

Also, for the last three months the market is rife with rumors about an imminent fall in prices, Grinbergs says. People simply don’t know what is going on; exuberance has abetted somewhat, and the market is waiting for clarity.
Data from the Bank of Latvia bears out this trend. In February new housing loans reached a peak of almost 280 million lats (400 million euros), but in March plummeted to approximately 130 million lats, according to a recent bank report.

Now the latest data is from March, and things will have moved on a bit since then. My guess is that what this drop reflects (apart possibly from a decline in new starts) is that people are holding back from buying. At the same time sale prices have not fallen much since people are waiting it out to sell.

OTOH, this, it would seem to me is rather over-optimistic:

But the stagnation won’t last long. As Grinbergs explains, the average occupancy in Riga is 24 square meters per capita, while in Western Europe it is 40 square meters. So over the long term more Latvians will try to improve their lifestyle by moving into a roomier residence. This, says Grinbergs, will help provide the real estate market’s next boost.

since while it could be true in the longer term, a lot does depend on how current issues are resolved.

Latvian abroad said...

Bank of Latvia has those two tables:

home loans
(click on sheet 16b),

all types of mortgages combined

The tables stop at March but there have also been press releases about April and May. They show amounts that are similar to March (130-140 mln lats) and much less than February. I think this primarily th tightening by the big Scandinavian-owned banks. (The breakdown by banks shows that they have cut the amounts substantially more than the smaller banks.)



The link has been corrected and now points to the correct page.

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