The new apartment market in the Baltic states
During the last few years there has been a boom on the market for newly constructed apartments in the Baltic states. Not only do the residents of the three countries have an interest in acquiring apartments in new residential buildings, but foreigners have also seen good opportunities for investment.
Real estate developers with different grades of experience are offering new projects in the Baltic capitals and in their outskirts. As expected, there is a common practice used by developers in concluding deals with potential apartment buyers. It follows that there are some important issues that have not been completely solved in these development projects that potential buyers could face when shopping for a new apartment in the Baltics.
Some questions that usually are not clarified enough.
Before construction of an apartment house begins, developers offer potential buyers to sign a so-called preagreement and ask for an advance payment 's in Latvia approximately 10 percent of the purchase price, in Estonia 15 percent 's 20 percent. By signing this preagreement, the purchase price and some other provisions are agreed upon, but not all provisions are clear enough.
First, the payment and calculation for maintenance and management-system costs for the new house have not been established. Apartment owners in Lithuania are usually forced to become members of a building cooperative that is responsible for managing and maintaining the newly built house. Should the majority of the apartment owners in Estonia decide to form the association, all apartment owners must join it.
Secondly, developers offer cancellation of mortgage in favor of the bank financing the project only after the purchase price is paid in full, but the banks financing the apartment purchase usually release funds after the mortgage on the apartment is registered in their favor. In Lithuania, an apartment house is usually mortgaged as a whole to the bank, and if a buyer pays the full purchase price, it does not necessarily remove the mortgage right registered in favor of the bank.
Thirdly, the opportunity to use parking lots in the basement of a new building or places in the yard of a building will be paid by the buyer. However, real estate developers in Latvia usually do not offer a clear and valuable legal construction of these objects 's i.e. the objects might be nonalienable. Thus, they do not have the expected value in the eyes of the bank financing the deal or further potential buyers. Even if there is no legal basis to register ownership rights, there might be a possibility to register the usage rights that should then be followed by other apartment owners of the new building and may remain in force after selling the apartment to the next buyer.
Unfortunately, Latvian developers, in contrast to Estonians, usually do not offer these solutions. In Estonia there are several legal instruments: to form a separate real estate property and/or to use it as a common space and agree on the use of parking places before notary and enter the respective agreement into the land register.
From the buyer's point of view these few issues are important. Buyers should remember that they are not clearly and uniformly regulated by law; therefore, it is important to reach an agreement between the parties. Real estate developers should cooperate more with consultants and lawyers before starting a project in order to define the clients' potential questions and to solve them in the agreements. Buyers, meanwhile, should include all the promises of the developer and oral agreements in written agreements.
Despite the impression that developers do not change their agreements, in practice changes are possible.
