Making less, paying more – the high cost of Riga

Raj Chaudhary's Indian and Thai restaurants have been popular with residents and tourists in all three Baltic capitals for years. But though the food served in each restaurant is comparable, the prices aren't.

When the three Baltic countries regained independence little more than a decade ago the cost of living in Tallinn, Riga and Vilnius was indistinguishable. Renting an apartment for example, cost the same whichever city one lived in.

But now people are finding their money goes further in Tallinn and Vilnius than it does in Riga, and some are wondering why.

"I think everything is expensive here in Riga. I would say that even our restaurants are expensive," said Chaudhary.

"The same food that I serve in Lithuania is much cheaper than in this place even though the raw materials like eggs and bread are basically the same price. It is the cost of rent and infrastructure that bring the prices up here."

In 2000, Latvia had the lowest gross income of the three Baltic countries.

Yet the average cost of renting a renovated one-room apartment in Riga's city center is about 35 percent higher than it is in both Estonia and Vilnius, according to Ober Haus real estate development company, which operates in all three Baltic countries and Poland.

The average cost of renting a two-room apartment meanwhile is about 35 percent higher in Riga's center than in Tallinn's and about 15 percent higher than in Vilnius.

It is Latvia's centralized character that makes renting in Riga so expensive, according to Peter Morris, head of Ober Haus' real estate division.

"We've got offices in all three capitals, but in Estonia we've got offices in Tartu, Parnu and Narva and in Lithuania we've got offices in Kaunas and Klaipeda. Latvia is a one-city country."

With 820,000 residents Riga may be the largest of the three Baltic capitals, but the area of the city that people want to live in is proportionately much smaller than it is in both Tallinn and Vilnius. This contributes to the high rent costs, says Morten Hansen, an economics professor at Riga's Stockholm School of Economics.

"People who want to live close to the center of the city have to pay for it because the area just isn't that big. It is a matter of supply and demand," said Hansen.

Morris agrees. Proportionately there are more foreigners living in Tallinn than in Riga, but the glut of renovated apartments in prime locations gives high spenders leverage and keeps prices down.Eager to expand his business to Sweden, Chaudhary is deeply unimpressed by the cost of doing business in the Baltics.

"In all three capitals the rent and infrastructure costs are far beyond even the biggest and the best cities worldwide. I was in Stockholm trying to find a place, and in the fashionable downtown the costs were $20 to $25 per square meter. Yet there are people who want to charge $50 per square meter to rent a place in Riga's old town. How can someone justify those prices in Riga, where the minimum wage level is far lower?"

With high rent costs being passed on to consumers you can find a free table on any given Friday night at almost any of Riga's high-end restaurants.

Chaudhary believes that in order for restaurants and other businesses to succeed in Riga, the rent prices have to come down significantly. He believes that the growing number of empty storefronts in all three capital cities shows that investors have already stopped paying.

"People charge outrageous prices for rent and foreign investors usually won't pay it. Nobody realizes the cost of having their property lying vacant."