RIGA - The real estate market in Latvia has ground to a standstill with little buying or development activity predicted in the coming year.
A leading market analyst said Latvia, once the darling of the property market, is now suffering in the wake of the devastating housing meltdown and global credit crunch.
In a grim market assessment Aija Klauza, Member of the Board of Ober-Haus, said the bubble had well and truly burst, and little recovery could be expected before 2010.
"The market has stopped at the moment. Practically nobody is able to buy anything," Klauza told The Baltic Times. "Generally we are seeing no new projects in Riga."
Klauza said the current economic crisis was compounding existing problems in an already crippled marketplace.
"Development of new projects practically stopped in 2008. A lot of new apartments have not been sold, and one reason is that prices are too high," the analyst said.
"The tendencies of 2008 will remain also in 2009, (but) the prices will be reducing... There is no reason to expect any positive change before 2010," she said.
Economic uncertainty coupled with high unemployment rates have made investors increasingly wary, with many now focusing on minimizing losses rather than expansion.
Such is the concern about the deepening economic crisis that even those with credit backing are choosing not to purchase property due to ongoing concerns about their future financial security.
"At present even the customers who have financial possibilities for purchasing the property are waiting, because they are not sure about their future incomes and work possibilities," said Klauza.
"As the economic crisis has touched not only Latvia, but the entire world, possible investors are not prepared to invest in such a sensitive market. At present they are more worried how to minimize their own financial losses," she said.
Market uncertainty meant many ordinary Latvians were also electing to rent rather than buy, further driving down demand.
The freefall in property prices looks set to continue in 2009, with the lowest point still not yet reached.
Klauza predicted this will occur as overextended investors dump non-performing properties in order to meet loan repayments.
The current situation is a far cry from the boom days of real estate, when property markets in the Baltics were seen as an investor's dream.
The property market in Latvia was once among the strongest in Europe, with prices more than doubling from 2004 to 2006.
During this period the national average price of housing in Latvia rose 150 percent from 211 euro per square meter in 2004 to 529 euro per square meter in 2006, according to data from the Central Statistical Bureau (CSB).
In 2004, the average price for residential properties in Riga stood at about 1,000 euro per square meter. Within a year, prices had shot up to 3,000 euro, reaching 5,000 euro for properties in the city's historic center.
Fuelled by an explosion in the supply of cheap, easy credit, the housing bubble, which began in 2001, reached its peak in 2005.
As demand continued to outstrip supply, investors keen to exploit high rental returns scrambled for their share of the property pie.
Ordinary Latvians, also eager to cash in on the boom, readily borrowed unaffordable loans of up to 10 times their salary.
By January 2007, a third of those who had purchased property through credit were unable to meet monthly installments.
Spiraling inflation levels also hurt the now struggling market.
In response the government raised taxes and cut spending, while several banks implemented more conservative lending policies.
However, by this time the housing bubble had already proved unsustainable.
In April that same year, weak economic growth and higher interest rates saw the market collapse.
Real estate data shows property prices in Latvia are currently falling at a faster rate than any other country in the world, plunging by 36 per cent in recent months.
Average apartment prices have slumped to 945 euros per square meter and 1,500 euro in the center of Riga.
This is in sharp contrast to the enormous price increases seen in previous years 's with 62 percent in 2006 and 35 percent in 2005.
In the fallout from the crash Latvia has also had to contend with excessive building projects from the boom, many of which are of substandard quality and design.
Klauza said the effects of the property crash were also being felt in the rental sector, where apartment prices have plummeted by 30 percent.
"The owners of apartments are waiting for rising prices to come in the nearest future if they have such possibilities. The tenants can easily find an appropriate apartment for an appropriate price," she said.
Latvia-based property owner Juris Naruns said landlords were being forced to lower rents for struggling tenants.
He predicted 2009 will bring a spike in bankruptcies along with a sharp decline in occupancy rates as businesses struggle to survive in the tough economic climate.
"The simple fact is that no matter how low you lower rents, some are just not going to make it," he said. "The situation as I see it is going to get much worse. This is going to be a year of awakening and a year of huge crisis."
"The worst part about this freefall is that we just don't know when we are going to see some sort of base to start rebuilding. It's a pretty frightening position," he said.
Road to recovery
Latvia, up until recently one of the fastest growing countries in Europe, now finds its economy in nosedive and markets in disarray.
It is an unenviable position, but Klauza said a clearly defined management plan, along with effective implementation of the government's economic policy, is key to market recovery.
She also called for an easing to bank lending policy in order to stimulate future activity in the market.
"Working out long-term projects and government financial support is essential," she said.
Klauza said while the current market uncertainty meant it was difficult to establish a "right time" to buy, there still existed opportunity for those with the right capital.
"If you have free capital or possibilities for credit and you have found an appropriate property 's you should just buy it now," she said.
* Latvia is seen as the worst affected Baltic state by the housing market crash, with apartment prices continuing to plummet.
* In December 2008, the average apartment price in Riga was 890 euro (623 lats) per square meter, which is 6 percent lower than in November, and a 37 percent decrease compared with December 2007, according to the Latio real estate market overview data.
* The number of apartments offered for sale, as well as the rental offer volume is also in decline, LETA has reported.
* Activity on Latvia's apartment market has dropped to its lowest point in seven years, with the number of deals registered in 2008 65 percent lower than in 2007, said Latio.
* Many apartment owners are choosing to rent out their apartments rather than to sell them at low prices.
* At the same time the number of rental offers, along with the number of potential tenants is contracting. As a result many owners who rent out their flats have been forced to lower fees.
* The retail space market is beginning to shift from a landlord to a tenant market.
* The economic downturn and drop in retail turnover has caused many local companies, who do not have experience in operating in a falling market, to cancel their expansion plans.
* There is currently not enough housing at disposal of Riga and this is potentially a positive indicator for the residential market of the city.
* According to the 2008 Baltic States Real Estate Market Report, there remains high demand for cheaper one and two room apartments in suburbs as well as a rising demand for apartments in newly built projects in suburbs as well.