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"One does not have to be an economics professor to understand that the declared state of emergency will affect all industries and affect many families," says Mr. Aigars Šmits, Chairman of the Board of "ARCO REAL ESTATE", a real estate company, describing the potential consequences of COVID-19, at the same time adding that every such situation is also a time of opportunity.
"The pandemic will bring adjustments to our industry as well, but the good news is that the prices in the real estate market in Riga were not as high as in the capitals of neighbouring countries - Tallinn and Vilnius. Therefore, I assume that the price adjustment in the secondary housing market will be insignificant," emphasizes Mr. A. Šmits.
The average price per square metre of standard-type apartments in Riga is currently € 822, which, according to the expert, may indeed fall in the current circumstances as prices are driven by demand. At the same time, Mr. A. Šmits calls for any change to be perceived without panic, because as long as the property is not sold at the lowest price, it does not immediately mean that the owner has lost money. On the contrary, the value of this property may increase over time.
A large part of the population has financial resources; moreover, bank economists have made such a statement publicly, suggesting that real estate market transactions will continue. Mr. A. Šmits is convinced that the spending of free funds will continue to be more carefully thought through, and this trend has been already observed in recent years. "No economist could have foreseen such a stalling of the economy, so it is too early to comment on the habits of the people in the real estate industry in the future, so I will not hasten with detailed forecasts," says Mr. A. Šmits.
When it comes to new housing projects, the head of ARCO REAL ESTATE believes that prices in this market segment are largely determined by the availability of bank financing for the purchase of the property. "A price adjustment could happen because people are already showing that they are ready to move and work in the construction industry for 30-40 euro a day. As a result, construction costs at the expense of the labour force could decrease, but claiming that prices are already falling is what I would call speculation," adds Mr. A. Šmits.
"If the developers of new projects have their own resources to invest in the construction of new projects, from a business point of view this is quite a grateful time. I am assuming that in times of economic downturn, it will be possible to buy cheaper building materials, to hire cheaper labour, and when the pandemic is over, the product will probably be the only project available on the market in this state of readiness," says the expert evaluating the developer capabilities.
According to Mr. A. Šmits, it is also necessary to prepare for the disbursement of guarantees under the Altum support program: "I have repeatedly stressed that the “give a loan” solution with the Altum initial payment guarantee is incorrect. The argument that there is enough money to pay off the loan, but not enough to raise an initial payment, clearly shows how wrong this guarantee is in this state of emergency. In the event of a loan repayment restriction, the lender's bank will receive a guaranteed amount from Altum, but this will not resolve any future loan payments by the customer if the household income has significantly declined or stopped."
30.03.2020.