Latvian House Price Crash Blamed On Russian Speculators

Latvian House Price Crash Blamed On Russian SpeculatorsRussian property speculators are blamed for Latvia’s boom and bust housing market.

Latvia enjoyed years of double digit growth in house prices until the market began to weaken in 2007.

That’s when prices dropped by 5% on the year previously before crashing by 30% in 2008 and then by an astonishing 42% in 2009.

There was a brief respite in 2010 when prices rose by 5%, and then again in 2011, when they rose by another 5%.

Prices rose in the capital Riga by less than 1% last year, and the number of completed new builds fell by 11% in the third quarter, compared with the year previously.

However, today’s property prices are an incredible 63% lower than their July 2007 peak.

Bargain prices

Analysts point to Russian investors snapping up land around the country to exploit the booming property market.

The Russians are not the only foreigners to exploit Latvia’s property market and many speculators have now returned to bag bargains since land prices are around a third of their peak values.

A survey suggests that Russians bought between 15% and 30% of all properties – helping fuel the house price boom.

One reason Latvian property was so popular with Russian buyers is that with ownership comes permanent residency status.

In some areas, the price of property doubled and then quadrupled as the boom took hold, according to the government’s statistics arm.

The property sector crash has coincided with a deep recession in Latvia which has lasted three years – at its worst in 2009 GDP fell by 17.7%.

Pent-up demand

Despite a recovery, the number of people getting mortgages is falling with the number approved dropping by 11% in December 2012 from the year before.

Another reason to explain the boom is that of supply and demand – before independence Latvia was building on average 10,000 new apartments every year, but after independence that dropped to 2,000. The number fell again to 1,000 a year between 2000 and 2003.

The resulting pent-up demand led to prices soaring, though Latvia has since increased the number of homes being built and the country has seen the proportion of owner-occupiers rise from 21% in 1990 to 87% in 2006.

The rise in new properties being built also flooded the market which helped prices to crash and there is still a problem with unsold units.

When Latvia’s property bubble burst, the nation teetered on the edge of economic collapse, but the government introduced severe austerity measures that worked but left a lot of ill-feeling from those who were trapped by falling home prices and the lack of finance to put a roof over their heads.

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