Private house construction under strain in Latvia

While the financial sector is growing, the construction sector is experiencing some strain, said the spokesman of the Financial Industry Association and member of the SEB banka board Kārlis Danēvičs in an interview with Latvian Radio July 22.

Normunds Dūcis, Head of Mortgage Lending at Swedbank, highlighted earlier on in the interview the bank details which, according to Danēvičs, correspond to the financial industry at large. 

Dūcis said that the increase in lending, which could be called gradual, began last year. The growth has not been remarkable since the financial crisis of 2008. Loan volumes have increased by 15-20% in recent years, but the pre-crisis level is still far away. 

By far the most unchangingly popular among Swedbank clients is the mortgage loan for standard apartments in Rīga. Similarly, there has been a rise in demand for loans to buy apartments in new housing projects. 

The most significant change, however, was observed in the construction of private houses. The Swedbank data show that the demand for loans for house purchases is 35% higher than last year. 

Danēvičs emphasized this point, noting that “the construction sector is heating up” when many construction projects fall into the same time slot. In other words, it would be better if houses were being built consistently throughout the year, rather than all at the same time. Those who are in the process of building private houses have to contend with a shortage of construction resources and higher prices. 

"In terms of borrowers, balance sheet and the government, we are better prepared for the next crisis than we have been in the last 100 years. No doubt about that. And yet the slump in the construction sector will be quite evident,” said Danēvičs.

The Swedbank spokesman also said that 80% of loans are taken in Rīga and its vicinity. The remaining 20% are equally distributed between the regions of Latvia. The borrowers profile is 25 – 35 years old and earning a salary of 1000 – 2000 euros per month. 

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