Economic class keeps the real estate market afloat

In April, the housing market’s radar has recorded signs of optimism as buyers have begun began to act on previously postponed decisions to purchase homes. Additionally, sellers were more inclined to accept offers at reduced prices. This trend was accompanied by an increase in the proportion of buyers interested in renting property with a right of redemption, although there remains a scarcity of developers offering such an option. Due to the sluggish market, there is a noticeable interest among homeowners in upgrading to larger or downsizing to smaller properties. Notably, in the Riga Agglomeration (Pierīga) there has been an uptick in demand for residential development land. Although this increased activity has not yet been reflected in transaction statistics, observations from April have been compiled into Latio Real Estate latest “Home Buyer Confidence Index.”

"Home Buyer Confidence Index"* data for April:

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

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

??????? 19% of sellers have asked for a disproportionately high price for the market situation (in March- 21%; in February - 22%; in January – 22%; in December – 22%; in November – 23%; in October – 24%);

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

??????? 53% of transactions were conducted without reliance on borrowing (in March - 50%; in February – 46%; in January – 45%; in December – 42%; in November – 40%; in October – 30%);

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

In April, the housing market in Riga saw an increase in the number of available apartments for purchase, with almost 4,400 units on the market, marking a 2% rise in sales advertisements compared to the previous month. In the primary market for new projects, there were 1,430 apartments available, reflecting a 5% decrease from March. Despite this, the average advertised price per square meter for indoor space was 2,780 EUR/m2, while the actual transaction prices remained stable at around 2,580 EUR/m2.

In the secondary market of new projects, the average transaction value of indoor space in Riga neighbourhoods remained steady, with the price per square meter averaging 1,930 euros in April. Similarly, in the centre of Riga, the average price remained constant, fluctuating around 2,630 EUR/m2.

The most significant buyer interest in Riga's housing segment was observed in series-type apartments, particularly those in satisfactory and low-quality technical conditions. In the capital's neighborhoods, the supply of series-type building apartments increased by 3%, totaling 1,910 units available for purchase. Although prices saw minor fluctuations of between 1.5% and 2%, the average transaction price for indoor space reached 1,020 EUR/m2. Conversely, registered transactions for series-type housing in central Riga experienced a 2% decline, dropping from 1,455 EUR/m2 in March to 1,425 EUR/m2 in April. Notably, a considerable portion of the series-type housing supply comprises inherited apartments, which tend to find buyers swiftly when priced appropriately for the market.

In April, swap offers have increasingly caught the attention of estate agents, as landlords consider both smaller and larger housing supply. The trend of renting properties with redemption rights persists, particularly in housing priced up to 50,000 EUR. Sellers, whose properties have been on the market for over six months, are showing more flexibility in reducing prices in line with the market average. The gradual but definite decrease in the EURIBOR rate is beginning to stir the housing market from what seemed like an endless Groundhog Day, according to observations made by estate agents, who are witnessing increased activity from both buyers and sellers.

Janeta Linkuna , a real estate agent at “Latio,” notes, “Sellers currently negotiating a possible sale of their property are making decisions more quickly and adjusting prices to the market, thereby increasing overall supply. On the other hand, there are buyers who have postponed purchasing a home for so long that they no longer expect a miracle and have decided to act now. This is reflected in property viewings, which are now attended not as mere tours but with a genuine intention to make a purchase.”

Analyzing the rental segment month-on-month, the available housing supply for rent decreased by 6% in April, representing 2780 properties. Of the total supply of rental apartments, 38% (1080 properties) consisted of units in series-type buildings located in the neighbourhoods of Riga.

Laura Bergmane , a real estate agent at “Latio,” observes, “Rental market participants are becoming more demanding and specific in their requirements. Landlords are increasingly willing to consider renting out their properties to foreigners due to their higher solvency. Interestingly, well-paid foreigners inspire more trust in owners than local tenants with stable and equivalent incomes. Furthermore, properties meeting certain standards are now highly sought after. Tenants are no longer willing to pay €300 for a home decorated 30 years ago; for such a monthly rent, the flat should undergo quality refurbishment, even if the property is very compact. Tenants are now more inclined to pay higher rents for higher-quality housing.”

Renting a one-bedroom dwelling in a new project in Riga's favourite neighbourhoods often remains more advantageous, but this is not always the case. Given the current market conditions, developers are increasingly including various bonuses in the sale price, causing the actual value of real estate to be relatively lower than the advertised price. In such cases, prospective buyers must consider that the price set by the developer may not reflect the full picture; it may contain hidden benefits that even the landlord themselves may overlook or undervalue, only revealed during discussions with interested parties. Meanwhile, average monthly rents have not proportionally decreased, thus maintaining an increased average rate. An analysis of the availability of rental accommodation, rent prices, and signed contracts leads to the following conclusion: For a property in a new project with a monthly rent of over 600 EUR and an acquisition value of approximately 115,000 EUR, there is a small, but noticeable percentage difference that makes buying the property more advantageous than renting it. However, it should be noted that even a slight difference in the monthly mortgage payment-to-rent ratio, sometimes just a few tens of euros, can significantly affect the decision-making process, with the overall balance often tipping in favour of renting.

In regional areas, the housing market is particularly active, with a noticeable increase in the supply of properties in major cities. For instance, in Vidzeme, compared to April of the previous year, the total number of advertisements for apartments and private houses has tripled. Despite this surge in supply, sellers are hesitant to discuss price reductions, holding out for a potential increase in interest from buyers during the summer months. The trend of selling properties owned by Latvian citizens living abroad persists. Similar to other regions, Vidzeme has also experienced heightened interest in rural properties, particularly private houses with land, in the price category up to 200,000?EUR. However, the majority of transactions for private houses in Vidzeme are concluded within the 120,000 EUR price range. In Latgale, there is a growing demand for high-quality private houses, resulting in a slight increase in prices for such properties.

In Zemgale, the residential development land segment has become increasingly active, with families seeking for land plots for the construction of private houses in Jelgava and its surrounding regions. In most cases, buyer interest is primarily focused on building compact frame houses with an area of up to 100 square metres.

The statistics regarding land sold in new private house villages within the Riga Agglomeration, where a considerable number of development properties have been sold over a short period, also highlight the demand for development land. For instance, in Grēne Village next to Olaine, buyer interest has remained high for several years, resulting in a significant number of transactions. Over the past year and a half, 28 plots of residential development land have been sold in Grēne. During the first quarter of this year, there has been a notable increase in buyer interest in development land on the left bank of the Daugava, particularly in Grēne Village in Olaine and Vētras Village in Mārupe. Additionally, numerous parcels for the construction of private houses have been sold in Salaspils and Rāmava. ?ekava, Me?āres, Balo?i, and Pi??i also continue to be among the most sought-after areas for buyers.

Regions continue to tend to attract up to 20,000 EUR of small home loans for property purchases, with the remainder of the necessary amount covered by their own funds. Such a strategy is used by both family and small investors, and individuals who plan to renovate and rent the purchased property or sell it at a higher price after refurbishment. Interest in new projects has also increased, for example, the apartment building on the lakeshore in Ozolnieki, offering 1-3 room dwellings for purchase, experienced an influx of interest in April – a queue of buyers has formed waiting for the building to be subdivided into separate apartment properties and available for purchase. It is mainly the attractive price triggering interest of the buyers – a square meter of housing costs between 1400 EUR and 1600 EUR, which is on average 30% cheaper than in new projects in the capital city.

Regions continue to attract small home loans of up to 20,000 EUR for property purchases, with the remainder of the necessary amount covered by the buyers' own funds. This strategy is employed by both families and small investors, as well as individuals who plan to renovate and rent out the purchased property or sell it at a higher price after refurbishment. Interest in new projects has also seen an uptick. For instance, an apartment building on the lakeshore in Ozolnieki, offering 1-3 room dwellings for purchase, experienced a surge in interest in April. A queue of buyers has formed, awaiting the subdivision of the building into separate apartment properties, which will make them available for purchase. The attractive price is the main driver of interest for buyers, with the cost per square meter of housing ranging between 1400 EUR and 1600 EUR, on average 30% cheaper than in new projects in the capital city.

*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 40-70 m2 with the average rental price advertised in March in one of the most sought-after neighbourhoods of Riga.

Additional information:

Rūta Roze

Latio | Market Analyst

E-mail: [email protected]

www.latio.lv