Overview of the Latvian real estate market

From the CEO of the international luxury real estate agency Mercury Group Ltd. Irina Alazova

Until the end of the year, the Latvian real estate market will be characterized by two states at the same time: certainty and uncertainty.

In Latvia, as well as throughout Europe, the summer season is starting, which will lead to higher rental prices.

Apart from the general trends, the Jurmala real estate market has always been one of the most stable in our country. Any economic or geopolitical vicissitudes have less impact on it than on other segments. This is primarily due to the natural attractiveness and attractiveness of this place. People came and will come here to live and relax, no matter what.

As for housing prices, they continue to rise steadily since the end of last year.

The increase is due to global inflation, which directly affected the cost of construction. Thus, in January inflation in Europe reached 5.1%, and in the US - 7.5%, which was the fastest annual growth in the last 40 years. The reason for this is the increase in energy prices.

At the end of February, the main trigger of macroeconomics, directly affecting the global real estate market, was the geopolitical situation in the world.

Before the real estate market had time to recover from the shock therapy caused by the pandemic and prolonged covid restrictions, a new crisis came. Macroeconomics has gone into a state of turbulence due to global sanctions against Russia, caused by its invasion of the territory of Ukraine.

The most obvious unfavorable trend to date: increased pressure on oil prices, which will certainly contribute to higher inflation. (For example, inflation in Greece rose to 10.2% in April.

Another economic consequence of the war in Ukraine is serious fluctuations in global stock markets, which can play out in the real estate market in both directions.

On the one hand, discretionary homebuyers (i.e. second home or investment property buyers) who dislike uncertainty of any kind, especially in the stock market, have taken a wait-and-see approach to buying real estate - they are eyeing and trying to calculate the risks.

On the other hand, a significant decline in the stock market may encourage both buyers and sellers to invest in real estate in order to receive higher returns from it in the future. Such activity may limit the supply of housing for interested buyers, which will lead to further price increases and an imbalance of supply and demand in the Latvian market.

Another important point: Russian citizens have always been one of the main buyers of real estate in Latvia, which, among other things, was associated with the possibility of obtaining a residence permit in the country.

As sanctions against Russia and Belarus, the Latvian government banned the issuance of residence permits to their citizens until July 1, 2023, and also froze the possibility of bank transfers from Russia. Thus, now the Latvian real estate market has closed access to a significant part of buyers - Russian citizens. This, of course, will also affect the balance of supply and demand in the real estate market.

The next 60-90 days will be very telling as to which of the levers mentioned (inflation, stock market turbulence and Russian buyers' cap) will affect the level of real estate activity in the Latvian real estate market.