Property in Latvia: An Overview

Strong investor interest in Latvia has been emerging since 2000 with initial investor focus centered firmly on the capital city of Riga where, according to research undertaken by Bloomberg, house prices have at least doubled in the past two years and where there have been local reports of price increases of anywhere between 300 and 800% in the last 5 years.

We felt it was time to offer our readers a property in Latvia overview from our in house Latvia specialist: in our interview with the Amberlamb Latvian property investment expert we recap the property buying process, we identify factors driving the success of the investment property market currently and we help investors determine whether the residential and commercial sectors have legs to run…

How has the Latvian property market developed over the past few years?

[As outlined above], investor interest in Latvia has slowly intensified since 2000 and it really began to take off when Latvia joined the European Union back in 2004 and since then investor interest has helped spark intense property price expansion. 

In part this growth surge has been fuelled by overseas interest in the nation, but initially the growth pattern was started by local interest - and more importantly for investors seeking a sustainable market in which to invest, local interest is continuing to support a thriving property market. 

Domestic purchasing power in Latvia was originally boosted by the relatively low cost of borrowing and the ease of access to home financing solutions and it has continued to be strong as a result of the fact that the economy in Latvia is booming.  Inflation has been above 6% for over two years and in the past five quarters it has exceeded double digit growth and shows no signs of dramatically slowing down.

Understanding the state of the economy in Latvia is key to determining the future prospects for the nation’s property market…

Is Latvian property a good investment commodity for the foreseeable future then?

Latvia is going to continue to be a thriving nation with an exceptionally strong housing market as long as it continues to attract horizontal foreign direct investment (FDI). 

Horizontal foreign direct investment is sustainable foreign direct investment. 

Latvia started its transition towards European Union entry as the nation paying the lowest wages in Europe.  Such a situation always attracts those looking for vertical FDI opportunities – i.e., an opportunity where they can invest for the short term and invest cheaply and ride the wave of the nation’s economic transformation, withdrawing financial commitment as soon as it becomes more expensive to do business and raise profits in Latvia.

Luckily for Latvia its government immediately realized their requirement to attract sustainable foreign direct investment if it was going to be able to build a stable economy and boost domestic GDP.  The government has since made significant commitments to improve the legal and administrative environment for both local and foreign business ventures wishing to establish themselves in Latvia…for example the government has reduced Corporate Income Tax to 15%, they offer a variety of other tax incentives, they give start up assistance and various grants such as those given for job creation.

Therefore, all the signs are that Latvia will continue to receive horizontal foreign direct investment and continue to have a thriving housing market.

Proof if it were needed, comes in the form of the fact that Latvia is about to become the Baltic State nation leading the way in terms of the development of superior warehousing and industrial facilities with the creation of Dominante Park which is expected to attract more companies offering more jobs, boosting the economy and the domestic purchasing power in Latvia which will fuel demand for housing thus pushing up the prices of property in Latvia even further and thus maintaining and sustaining a thriving property market!

Where should an investor invest and what should they be buying in Latvia right now?

Where to invest and what to invest in depends on the individual investor’s reasons for committing to Latvia…those looking for shorter term gains are best advised to look to the residential market in the main cities and employment hubs, those looking for long term yields are best advised to look to the commercial property market in Latvia and anyone seeking an emerging market within an emerging market could consider a city such as Liepaja for example.

In my opinion Liepaja is now a more interesting location to invest in than Riga and commercial property is perhaps a more interesting sector to target than residential property in Latvia for the long term…

Why Liepaja?

Liepaja does have an emerging tourism market but more interestingly it is in a geographically strategically important position, and because its port is ice-free and it has exceptional rail, road and air links too, its superior logistics facilities are enabling it to gain ground as a transportation hub joining the CIS nations to Eastern and Western Europe.

The port city already has a fairly large and well educated workforce and the city’s authorities are committed to attracting further investment and growing their economy.  As a result they have set up the Liepaja Special Economic Zone to make it more attractive for businesses to commit to the city and many of the city’s tertiary educational establishments are developing training courses to fulfill the employee requirements of international businesses relocating to Liepaja.  This has two effects, on the one hand it provides companies with a choice of skilled workers and on the other hand it draws more talented people to the city to further train and find skilled and well paying employment.

All of these factors are having a positive effect on the economy and on the commercial and residential property markets.  As domestic purchasing power increases and the city enjoys inward migration of professional workers, so the requirement for (and the ability to pay for) more property increases creating ‘demand’ in the residential sector which spells ‘opportunity’ for the investor!  Furthermore there has been a strong uptake of commercial premises in Liepaja - although if an investor wants the best commercial opportunities its time to head back towards Riga.

Why Commercial?

Dominante Park, the largest, most innovative and significant industrial park in the entire Baltic States region is being constructed just 20km away from Riga and Dominante Park is incredibly significant for the viability of commercial property as an investment commodity in Latvia for the medium to long term for 2 main reasons: -

Firstly the park will put Latvia at the forefront of the industrial and warehousing revolution in the Baltic States, it will ensure that high quality, well located industrial facilities with excellent infrastructure are available in Latvia and Latvia alone for all companies wishing to enter the Baltic region right now and therefore, by establishing itself as the flagship for the development of this sector in the region, Latvia is putting itself in the enviable position of market leader.  Anyone looking to the area for an entry point will choose Latvia.

Secondly, the development of the commercial market will attract more business which will create more jobs which will increase domestic spending power which will result in an increase in retail activity which will boost this sector of the commercial property market too - giving investors even more sectors to examine for potential profitability in Latvia.

What about buying fly-to-let holiday property in Latvia?

As stated, the key to profiting from property in Latvia is local market demand – so while there is international demand for accommodation for stag parties in Riga and for summer cottages in the Blue Flag resorts of Jurmala, Liepaja and Ventspils for example, if you want to buy to let to the tourism market you need to target local Latvian demand principally and you need to know that the summer holiday season is short. 

Jurmala, Liepaja and Ventspils are all good places to start looking at demand, supply, property prices and likely yields – although good emerging alternatives are Kemeri, Sigulda, Bauska and Daugavpils. 

Finally, what does an investor need to bear in mind when buying in Latvia?

Latvia is an emerging nation, it has a relatively immature property market and as a result buyers need to be a little more astute and on their toes when researching the market.  Properties are ‘sold as seen’ and if someone is buying an older property and does not bother to have it surveyed properly then that’s their problem – there will be no one to complain to! 

In terms of the legal side of things, since at least the year 2000 legislation has been in place to ensure foreign and local buyers of property in Latvia are treated in pretty much the same way and now that Latvia is well and truly in the EU you do not need to establish a company to buy property in Latvia. 

Things to watch out for – the asking price is usually non-negotiable, check whether it includes VAT (which is up to 18%) and estate agent’s fees before you agree to buy and bear in mind that there is 2% stamp duty, annual cadastral tax (like council tax) of a maximum of 1.5% of the property’s value (usually substantially less) as well as CGT of up to 25% and income tax of 25% on any rental income – but the good news is that both CGT and income tax have allowable exemptions and expenses deductible.

Special Reports: Property News for Latvia

Latvia Guide for Property Buyers
Incredible opportunity exists in Latvia for property buyers as the Latvian economy booms and horizontal foreign direct investment surges.

Latvia Property Buying Guide
Overseas real estate investors buying investment property in Latvia find the entire purchase process straightforward and related expenses low

Latvia Property Investment Guide
Local demand and purchasing power in Latvia is at an all time high affording property investors in Latvia massive opportunity