RIGA - Prices of standard design apartments in Riga dropped 17.1 percent last year and will continue falling in 2008, a new market review by Balsts, a local real estate firm, shows.
The firm claimed that the average price of standard design apartments in Riga declined 4.1 percent in December, the steepest monthly fall so far. It also said that the number of apartment rent offers and rent prices have increased. In the center of Riga, for example, rent prices have shot up 15 percent, while in the suburbs, the rise was as high as 30 percent.
Real estate agents said the rise in rent payments is due to expectations that apartment prices will continue to fall and that obtaining loans for buying property will remain difficult.
Looking ahead, rent payments and demand will continue to rise throughout the year if the situation remains the same, Balsts said.
Meanwhile, a top official from a local subsidiary of Nordea, a Finnish bank, said that the era of easy money in Latvia's property market was in the past and only firms that are financially stable and have sound management will survive.
In the words of Valdis Siksnis, "The real estate market undoubtedly experienced considerable changes, as both liquidity and prices of the real estate have declined. This shows that the possibilities of gaining quick profits have fallen, but, like in other industries, large, financially stable and experienced companies will be able to continue operating in the industry."
He said real estate development was also in decline, but that the situation was not severe.
"Conditions on the lending market have changed. If earlier smaller developers with less experience wished to build one house, the decline in the industry has led to their replacement by larger lenders, who can afford to develop bigger projects or larger investments," Siksnis said.
He said Nordea planned a lending growth limit of 20 - 25 percent during upcoming years, "which would even be favorable under the conditions when concern has existed of the overheating of Latvian economy stimulated by growth of lending," he said.
He said that even if the lending growth rate were to fall further, it could point to excessively fast cooling of the economy.
When asked about loan rates, Siksnis forecasted that the EURIBOR base rate could grow slightly this year, as it was very low in 2007.
He said that borrowers who are unable to repay the loans do not pose problems for Nordea, where out of some 16,000 borrowers only 22 have had problems with making housing loan payments.
He said the amount of loans issued in absolute figures over the past two years was approximately similar, but while growth in 2006 was 56 percent it fell to 36 percent last year 's and that was after a significant rise in loan growth registered in the first months of the year.
