Carrot on the end of the nose: developers compete with enticing benefits to attract homebuyers

Despite increased activity from both buyers and sellers in the latter half of March, the average number of days to sell a property at market price remains unchanged at 76 days. Notwithstanding this market stability, homeowners persist in listing properties at prices well above market value. According to the latest "Home Buyer Confidence Index" by Latio Real Estate , geopolitical factors continue to play a significant role in delaying real estate purchase decisions, particularly for properties requiring substantial investment. The primary market of new projects is saturated with enticing offers from developers, further complicating buyers' decision-making processes. Conversely, in the secondary housing segment, prospective buyers are keen on acquiring properties at prices up to 30% lower than those initially set by sellers.

"Home Buyer Confidence Index"* data for March:

??????? 76 days – on average, it took this long to sell a home at the market price (in February – 76; in January- 78; in December - 80; in November - 84; in October - 85; in September – 85);

??????? 9% of housing units were sold within one month of advertisement publication (in February – 9%; in January - 9%; in December - 8%; in November - 6%; in October - 7%; in September - 8%);

??????? 21% of sellers have asked for a disproportionately high price for the market situation (in February - 22%; in January – 22%; in December – 22%; in November – 23%; in October – 24%; in September – 25%);

??????? 0% of buyers have offered a higher price than indicated in the advertisement (in February - 0%; in January – 0%; December – 0%; November – 0%; October – 0%; September – 0%);

??????? 50% of transactions were conducted without reliance on borrowing (in February – 46%; in January – 45%; in December – 42%; in November – 40%; in October – 30%; in September – 31%);

??????? 18%** - it is currently more profitable to rent than to buy a home (in February – 14%; in January – 14%; in December – 11%; in November – 9%; in October – 9%; in September – 8%).

In March, the housing market in Riga showcased a total of approximately 4,300 available apartments for purchase. Among these, over a third, totaling 1,505 dwellings, were listed in the primary market of new projects, showing a modest increase of less than 10% during the month. The supply was further enriched by the addition of more than 100 apartments in the newly introduced Gatves Lofti project in Teika, alongside 56 apartments in the Grīzi?a Nams project, and an additional 20 apartments in the Dārzciema Liepas project. Notably, the average prices for interior spaces in advertisements saw a marginal uptick of half a percent, reaching 2,275 EUR/sq.m. Meanwhile, in finalized transactions, prices experienced a more pronounced increase of 5%, reaching 2,590 EUR/sq.m. Developers are actively enticing prospective buyers through various incentives, such as special discounts, fitted kitchens, paid interior designer services, and price inclusive of parking spaces. These strategic marketing initiatives often expedite decision-making processes, ultimately saving buyers both time and money. For instance, opting for kitchen equipment from a developer with access to wholesale prices can yield substantial financial benefits.

"The prevalence of special offers on classifieds portals is on the rise, yet developers' responses to market dynamics vary. It is noteworthy that many developers maintain a degree of skepticism regarding potential price reductions, opting instead to entice buyers with alternative incentives not directly tied to discounted sale prices. With an abundance of diverse special offers flooding the market, navigating the landscape becomes akin to a Maths Olympiad for buyers, who must calculate which offer presents the most financially advantageous and suitable option. Moreover, buyers must discern whether the pricing of new projects aligns with their quality standards, and whether the additional incentives offered by developers are justified and truly add value," explains Rūta Roze , market analyst at "Latio," regarding the current state of the primary market of new projects.

The secondary market prices of new projects in Riga have also witnessed notable shifts. In March, transactions saw a notable uptick of 7% in average prices for indoor areas. According to registered transaction data, the average price per square meter of new projects in the secondary market within Riga's vicinity stands at 1,920 EUR. Conversely, in the city centre, there was a slight decline of 6% in average prices during the month, with indoor space averaging 2,620 EUR per square meter.

Series-type buildings accounted for 43% of the supply in Riga, totaling 1,850 apartments available for purchase in March. This marks a significant increase of over 20% compared to the beginning of the year. Prices in the surrounding areas of Riga have remained steady, maintaining an average of 1,040 EUR/sq.m in transactions. However, in the city centre, prices experienced a modest rise of less than 3%, reaching 1,455 EUR/sq.m. One-bedroom apartments continue to garner the highest interest among prospective buyers.

The rental segment has experienced significant activity, particularly noteworthy in recent trends. In the past month, approximately 1,140 apartments within series-type buildings were available for rent in Riga, accounting for nearly 39% of the total rental listings published in March, which amounted to just under 3,000. The remaining listings consisted of apartments in new projects and historical buildings. Real estate agents at "Latio" have observed a heightened interest in well-maintained one-bedroom and two-bedroom rental apartments. For rents exceeding 500 EUR per month, tenants typically seek high-quality, renovated apartments furnished with relatively new furniture acquired in recent years. Moreover, the rent index has surged by four percentage points. In March, renting a one-bedroom apartment in a new project located in Riga's most sought-after neighborhoods proved to be, on average, 18% more cost-effective than purchasing it with a 25-year mortgage.

In the early days of spring, Zemgale experiences a surge in activity within the building land segment. Sellers are actively listing their plots of land for sale, while the demand from prospective buyers remains consistently high. Despite the likelihood of needing to adjust prices downwards, sellers initially maintain an optimistic outlook. Real estate agents have observed a common trend: owners of residential development land often hold out for transaction amounts that significantly exceed the property's market value. These owners are reluctant to concede to buyers' desired prices, typically only considering price reductions if the property remains unsold for an extended period, typically over six months. Similar to the beginning of the year, the market continues to witness substantial demand for rental properties, particularly private houses.

There has not been a significant drop in property prices observed in Vidzeme region either. Many properties remain listed for sale at prices exceeding the market value, which extends the search for suitable buyers. While prospective buyers show high levels of interest, they often hesitate to make final decisions, awaiting more favorable offerings to emerge on the market. Owners residing abroad are eager to sell their properties, a scenario commonly seen among such sellers who often possess multiple properties. Consequently, they should anticipate capital gains tax implications and a lengthier sales process. Transactions in the region typically range up to EUR 80,000, with purchases often made without bank financing. Occasionally, transactions amounting to EUR 100,000 to 150,000 are observed, albeit less frequently.

*For residents to be better informed about the current situation in the real estate market, “Latio” publishes the “Home Buyer Confidence Index” on a monthly basis, summarizing the six most descriptive indicators of the market situation over the past month.

**The index is calculated by comparing the potential average monthly mortgage loan payment with a loan term of 25 years in the new projects of two-room apartments with an area of 40-60 m2 with the average rental price advertised in March in one of the most sought-after neighbourhoods of Riga.

Additional information:

Ruta Roze

Latio | Market Analyst

E-mail: [email protected]

www.latio.lv