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Latvian property faces uphill battle

10th January 2007 | back to article listings BACK    print this article PRINT

Despite recording strong price increases in the third quarter of 2006, the Latvian property market has a tough 2007 ahead of it, if it is to compete with Europe's top overseas locations for property investment in the long term.

Property in Riga, the Latvian capital, grew by a whopping 39.2 per cent in the third three months of last year, according to Knight Frank's global house price index. Although this was a considerable fall from the mammoth 65.9 per cent recorded in 2005, this still represents considerable gains in what is comparatively a very cheap location.

This performance placed it at the top of Knight Frank's table of 32 developed countries' property market growth around the world, but experts are not convinced that the former communist country will offer investors strong returns on investment in the long term.

Liam Bailey, head of Knight Frank residential research, said: "Latvia has seen, and is forecast to see over the medium term, economic growth above the EU average.

"We commented last quarter that a levelling up is affecting almost all the markets in the former Eastern Bloc – especially those which have joined the EU in recent years.

"Wage inflation, growing prosperity and access to less constrained mortgage finance have all contributed to rapidly rising prices."

However, property investment specialists Amberlamb insist that Latvia has a long way to go to build the strong economic fundamentals that underpin Europe's most successful housing markets.

"We have economists warning that Latvia's government should not be in such a hurry to raise wages and living standards to those of Western EU members because this will actually reduce the competitive edge that it offers currently and see foreign investment slip away," the firm said in a statement.

It is also believed that the European Central Bank is currently concerned about the country's high levels inflation, which is stalling the country's entry into the eurozone.

Latvia appears to be in a similar position as Bulgaria with regard overseas property investment. There are still price gains to be made in both eastern European nations but due to their volatile markets, it is difficult to predict in which regions these will be and for how long they will last.

Amberlamb insists that there will be "short term gains" but in the long term prospects are "mixed, putting it mildly".

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/3212.html. Alternatively, please see our full press release archive.

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