Housing and rental market heated in Latvia

The housing market is currently hot: demand for both rental and property purchases is well above supply. Those seeking new rental housing have to make a considerable effort to get a reasonable price, whereas those who want to buy housing have to take into account the high demand and prices that come with it, Latvian Radio reported on August 10. 

“We are a family of four people and live in a 70-square-meter rented apartment in Purvciems,” said Elīna in a conversation with Latvian Radio. There is no significant increase in utility bills at the moment, but concerns are raised due to the heating season.

“We live in a nine-story multi-apartment house with central heating. Unfortunately, the house isn't insulated. When it comes to increasing bills, we also considered looking for and renting a smaller apartment and saving in rent, more precisely the rent difference, but then we realized that rental prices were very high at the moment. And we'd be paying for a smaller apartment as much as we're paying now. Also, the supply of rental apartments is very poor, especially in the neighborhood of interest where children have a school next to them.  We therefore abandoned this idea and look forward to a warm winter,” Elīna said.

As energy prices rise, Normunds is also considering moving from the current 80-square-meter apartment to another, because the heating is provided with gas. Normunds said that when looking for a new apartment, primary attention is paid to the type of heating, whether the apartment is in a renovated house or a new project.

“There was never any question at all and it was mostly secondary. Always when looking for housing, it was important to see the location and focus on whether I like the apartment or not. It's the other way around now. Choosing from the beginning what the building is like, what kind of heating is there, how much to pay for it, and then assessing whether you want to live in this housing or not,” Normunds said.

Asked if there were any offers and whether many would like to change their housing right now, Normunds said: "Yes, I have noticed that it looks like there are more serial apartments on the market - both on rent and on sale. Namely, the old paneling, brick houses, called Lithuanian projects. The buildings have not been warmed up, and [..] it could be quite painful for people to pay for such housing heating. Perhaps this is why many are trying to rent out or sell apartments in a serial home to find a more economical option. The new projects, as always, are missing."

The head of the Latio Housing Trade Department Evija Dzenīte said that people were obviously looking to avoid gas heating. Those who have purchased gas-heating properties are looking at how to economize, for example by reducing heat by a few degrees, or how to change the heating system.

“Many look at heat pumps. In turn, to economize electricity, many look at solar panels. As far as I know, the situation is already pretty poor with solar panels and everything that is available in Latvia has been exhausted. In general, residents are pretty worried. Maybe not worried, but thinking hard about what to change, how to do, what to save,” said Dzenīte.

Similarly, in the housing purchasing market, people who can afford it, see that the apartment is in a new project. However, not all Latvian residents have the advantage to purchase such housing. Therefore, they also purchase apartments in serial housing, but this year's trend is that along with an increase in construction costs, people are looking to get an apartment in a serial house freshly repaired.

"It has also been observed by our colleagues that apartments on the market in which nothing has been done since the Soviet times have not been very demanded. People aren't prepared to repair such apartments. We carried out statistics in Q2 of this year, which concluded that serial apartment advertisements increased by 60% in Rīga. It was very clear that apparently those families who had held on, for example, had decided to get rid of this apartment, thinking about the cost of heating," the Latio spokeswoman said.

The rental market has seasonal patterns and it is now the hottest period of the year, as rental apartments, especially in Rīga, are demanded by foreign students. The most attractive offers in the rental market are caught in a flash, both in terms of price and apartment quality.

“And of course, we cannot exclude also Ukrainian refugees who live in rental apartments. People have also moved to Latvia from other countries, for example, for some time. Because the rental market is pretty hot.”

Asked what happens to apartments that are on gas heating, Dzenīte said, “rental prices are not lowering at this time of the hot rental market. Let's see how it will be in the autumn. Rental prices for apartments with gas heating are likely to fall. That's the way it should be."

The fact that the supply in the rental market is well below demand is also confirmed by the real estate agent of Arco Real Estate, Edgars Dargis, saying that the competition for rental housing is high - not only local residents but also among foreigners – from students to people from Ukraine, Russia, and Belarus.

"If you also want to change your apartment to something more economical, it's a lot of trouble because there's no big choice. Advertisements should always be actively watched and searched. If rental prices did not rise before, when sales prices for housing were rising by around 10-25%, then rental housing prices are now rising by 15-20%," said Dargis. "Because of the high demand and, if something economic is looked for, around €500, it is very difficult. If something beautiful appears in the offer and the owner has not raised the rent and left it to its previous amount, these apartments are most often not available within a few days."

The head of Swedbank's mortgage lending business Normunds Dūcis said that when the war began in Ukraine, customers' interest in housing purchasing declined by about 30% in the first two weeks, but demand returned equally quickly. Secondly, due to the increase in prices of energy resources and raw materials, the bank encouraged customers to consider whether it is now time to start building a house.

"In view of the increase in construction costs, those who had started construction have made rapid efforts to complete construction to purchase and use materials as soon as possible and not overpay for potential increases in building materials. I would say that summer was a very active period of construction. Building materials were quickly redeemed and there was a lack of working hands on the market," said the bank's representative.

In terms of apartments, customers in the bank are also interested in switching an existing, less-economic apartment to a new one. Dūcis said that overall, in the new housing market this year, demand is the largest since the time of the financial crisis in 2008.

“Right now, real estate prices are rising because demand is high enough. At present, the market has been the most active since the crisis. And it also brings a moderate increase in prices."



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