RIGA - Though it has failed to reverse the rise in the consumer price index, the government's anti-inflation plan has sapped the strength from the property market, particularly for apartments and houses, real estate firms have confirmed.
Prices are likely to continue falling throughout 2008 as consumers continue to adjust to the new policies for acquiring property that the government set in place earlier this year.
Aigars Zarins, chairman of Balsts, a real estate firm, said that the number of real estate deals in Riga and the surrounding country had declined from 35,200 transactions in 2006 to about 17,000 deals so far this year.
According to one study, the average price for a square meter in a standard design apartment in Riga was 1,520 euros at the beginning of 2007. By March this had grown to 1,660, where it flatlined until August, when it fell to 1,560 euros. By October, the price for a square meter was 1,490.
All told, by the end of 2007 prices for standard design apartments will have fallen 15 - 16 percent.
Latio, a real estate firm, reported earlier this month that prices for standard design apartments in Riga were down 1.6 percent in November to 1,445 euros per square meter.
The company said that this was the first time that apartment prices had declined below prices for the same period a year ago.
Buyers are holding off for now as they expect prices to fall further, Latio said.
Housing prices are also down by 15 - 18 percent, a study by Ober Haus, the largest real estate company in the Baltics, has shown.
According to Ober Haus, houses are less in demand than apartments as potential house purchasers set high standards for developers, who often cannot meet the standards given the difficulties on the construction market.
As a result, home builders are often forced to freeze construction projects and reduce the number of builders it has allocated to one building site, Ober Haus explained.
Demand for houses in the so-called private house villages is depressed as developers are currently not offering large-scale projects. What's more, many developers are now selling only land plots with communications, which means that buyers often have to figure out on their own how to build the houses.
Ober Haus said that from 2000 until 2007 the total number of private house villages reached 235, with land plots reaching 7,800. Of these, some 72 percent 's or 5,700 land plots 's have not been sold.
Presently 60 percent of the private house villages that do not have houses are up for sale.
Meanwhile, Zarins has argued that falling real estate prices in an environment of increasing inflation proves that the property market was not the culprit for Latvia's overheating economy, as many economists have argued.
"Despite the government's brave decisions, inflation has only increased, which means that the real estate market has not been the main driver behind inflation," he said. "So the new government has to carefully consider a solution for this problem, which will influence Latvia's economic situation."
Zarins said the market would bounce back as wages continue to increase, including officially registered income. Still, the government should consider other measures to bring life back to the market.
"The government should consider giving advantages to certain social groups, such as new families and people buying their first housing. An advantage would be lifting the requirement for the first installment, which is 10 - 15 percent of the property's value," Zarins suggested.