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Market of New Real Estate Projects

  • The real estate market of the Baltic States has never been as active as it is in the last few years. Currently the most interesting segment in the Baltic Real Estate market, especially in Latvia, is the segment of the new project development and the continuous growth of it.


The real estate market of the Baltic States has never been as active as it is in the last few years. Strong factor influencing the activation of real estate market has been given by lowered interest rates offered by local banks. As in 1998 the average mortgage interest rates were about 14 %, in 2005 those rates have dropped to 4 - 4.5 %. The main reasons lie in growth of reliability towards the three Baltic States as well as increasing competition between commercial banks operating in the local market. The interest rates have mainly been the factors increasing the number of real estate transactions, overall demand and accordingly real estate price level.
 
Currently the most interesting segment in the Baltic Real Estate market, especially in Latvia, is the segment of the new project development and the continuous growth of it. Development of new projects in Latvia has already turned into a separate branch of the real estate market, which fact is confirmed by the extension activities of this market and interest of investors and private entrepreneurs in development of this branch.
 
To be more particular, the highest demand in the new project branch is for new qualitative apartments as well as new office premises. However, the supply of this type objects can hardly satisfy the demand; therefore, growing number of new project developers are keen on entering the market.
 
Residential premises
 
Year 2005 has been significant for Latvian new project market as new large developments have appeared in the market and still more and more projects keep emerging. For the new residential developments customers try to look more closely on the quality issues of the buildings. The highest demand is for 2-room and 3-room apartments in few-storey buildings (under 5 storeys). Moreover, the importance of location and surroundings has risen as well as the level of interior decoration. Currently apartments with final interior decoration are more attractive to the customers. Although the price level of such apartments is higher, people like to avoid problems with repair works, additional expenses, and other difficulties related to that. The highest supply of apartments with final decoration is in Estonia, while many developers in Latvia offer to choose the level of interior decoration from “white decoration” to the fully completed decoration. Most of the new multi-apartment projects are located in the dwelling areas. The price range of new apartments in Riga is following: 1 100 – 1 200 EUR/m2 with “white” interior decoration, 1 300 – 2 500 EUR/m2 with final interior decoration.
 
Old residential buildings in the centre of Riga are being reconstructed and typically sold out. The price range of new and reconstructed project in the centre of capitals in all three Baltic States is between 1 600 - 3 500 EUR/m2, with the highest prices in Riga 2 300 – 3 500 EUR/m2.
 
Considering individual housing sector, it can be described as still growing, where many new small scale projects has appeared. Currently demand for individual small-area houses (up to 130 m2) is high, while the main part of the offer is still occupied by private houses of a relatively big floor area. However, this illogical situation has started to change.
 
Arco Real Estate market analysts forecast that in 2006, the apartment price growth will continue and the prices will increase by 10 – 20 %, provided that the mortgage loan interest rates will no be materially changed. The average price level growth in private house segment should not exceed the limit of 15 - 25 %, which is closely related to the further land price increase. The real estate market in Latvia will be substantially dependant on the rates set by the Bank of Latvia and the European Central Bank. Moreover, the prices of the new projects in 2006 will be affected by a further increase of construction costs, i.e., further price growth is expected.
 
Office Premises
 
The demand for new offices (A and B class) in Riga is high. As some new office buildings appear in the market, premises are typically booked in 3-4 months. The importance of car parking possibilities rises; therefore many companies try to relocate to outskirts of the city. The rental prices in all three capital cities of the Baltic States are between 10 and 19 EUR/m2 per month, with the highest rental prices in Riga 13 - 19 EUR/m2 per month.
 
Considering the development tendencies of commercial premises, Arco Real Estate analysts think that the market of new office premises will grow faster in 2007, because the office centers that have been launched in the market recently, most likely will not be commissioned in 2006.
 
Overall, the Baltic Real Estate market is still rapidly growing and as long as demand for new residential and commercial premises will not be satisfied, the market will be as active as it is now. According to the statistics of the development projects it will take many years to reach the EU level of new project development and to satisfy the exceedingly high demand at least conditionally.
 
This information has been prepared by Arco Real Estate in Latvia. The sources of information are Baltic Real Estate Market Overview 2005 and Latvian Real Estate Market Overview 2005 that are prepared by
market analysts of Arco Real Estate.

21.06.2006.

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