Latvia’s apartment 'price crash'

Prices in the Latvian apartment market are in freefall, according to Knight Frank…

The latest release of the Knight Frank Global house price index shows considerable changes from those seen in recent quarters, where the pattern of strong growth in Baltic markets was becoming almost routine.

Latvia the runaway success at the top of the index for the last ten quarters – has slipped considerably down the table, with price inflation over the 12 months to Q3 2007 at just over 10%. While at face value, this is a respectable rate of growth, prices in certain sectors of the market in Riga have begun to fall.

Prices declining

Prices in the apartment market are declining – as a result of the combination of a number of factors: interest rate rises in May this year, undoubtedly some rebound from the unsustainable rates of growth seen over the last couple of years, and legislative changes (affecting stamp duty for owners of multiple properties) targeted at limiting speculative investment.

The latter have been successful, with the greatest fall in prices in the capital occurring in the one bed apartment market. Although growth has slowed overall, prices remain stable in the detached house market in the city. However, consumer confidence has fallen and the tightening of credit conditions has undoubtedly had some impact on the Latvian market.

The volume of transactions is down for all property types and we expect that sellers of detached properties are reluctant to accept reduced offers. It should also be noted that in the case of new build houses and apartments, developers may offer additional fittings included in the sale price rather than reduce the price of property. Such discounts would not be reflected in a house price index.