RIGA - Latvia will soon abolish a requirement that potential homeowners have to put a 10 percent down payment in order to purchase property, Bank of Latvia President Ilmars Rimsevics said on April 9.
"I believe that the first payment has lost its meaning in lending, and it is a matter of time before the first payment requirement is lifted," Rimsevics told reporters after meeting with Prime Minister Ivars Godmanis. He said the requirement would likely be lifted in the nearest months.
The measure was put into place last summer in order to deflate the lending and property bubbles that had formed in Latvia's economy and had sparked macroeconomic distortions. Since then, lending has declined significantly and real estate prices fallen substantially, approximately 2 percent per month, according to some experts.
Real estate experts were tepid about the news, saying it wouldn't be sufficient to kick-start the property market.
"Such a decision is quite welcome, but I do not believe that it will improve the existing situation on the real estate market. The psychological barrier will definitely be lifted for residents who abstained from purchasing real estate due to government regulations," Aigars Zarins, board chairman of Balsts real estate company, said.
Edgars Sins, chairman of Latio, a real estate firm, said he believes the decision will not cause any changes. "In a situation when prices are falling, banks will not give 100 percent regardless of lawmakers' kind permission," he said.
"The situation would not change even if the government paid 10 percent instead of the buyer," Sins added.
Janis Lasmanis, president of Kolonna, said that lifting the requirement will activate the real estate market, but not by much. "In the future banks will decide individually what initial payment to request from the borrower," he said, adding that another rule 's a certification of legal income issued by the State Revenue Service 's will remain in force.
Zarins said banks should be allowed to gauge whether customers have other sources of income in addition to the certificate from the state tax office.
Ugis Stipnieks, head of the Latvian Developers Association, said the current stagnation on Latvia's property market was primarily benefiting speculators.
"If the current drop in property prices continues, prices can slip below the actual value. This situation will make speculators happy, as they will be able to buy properties cheaply to use them in further operations," Stipnieks explained. He said many speculators will seize this opportunity in the hope that the government will miss the moment to re-stimulate the property market.
He said the government acted too late in tackling the real estate bubble. "The government interfered in this market too late, inadvertently hitting developers, builders, real estate agents and others involved in the business, except for speculators," Stipnieks said.
