Thursday, September 27, 2007

September real estate numbers

The Latvian real estate bubble continues deflating. Balsts real estate company estimates that the average Soviet-era apartment price in Riga is now 1557 euros/m2, 2% less than in August. Combined with 12% decline in previous 4 months, this means that the prices are 14% off the peak level achieved in April. The real estate speculation is now moving on to Bulgaria and other countries in Southeastern Europe. (Even Latvian real estate portals are advertizing properties in Bulgaria a lot.)

However, the prices are still up 2% compared to January 2007, up 20% compared to August 2006 and up 90% compared to August 2005. The real estate prices were growing extremely fast for the last few years and, in comparison to that, the current decline has been quite slow.

There is a potential for further price declines. The prices for newly built apartments in Riga are substantially higher than in other Baltic capitals or even Latvian towns at just 20km distance from Riga. The most likely explanation is that much of new construction in Riga has been priced according to what buyers would pay at the peak of the bubble (rather than the actual construction costs). I suspect some of new construction prices includes profits of 20% or so.

As buyers and banks become more cautious, the developers may end up settling for smaller profits and lowering the prices. Having newer apartments at lower prices would then bring down the prices for older apartments as well...


1 comment:

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