The veil of uncertainty. Real Estate market during the war and post-war period


It seems that in the last two years, the Latvian Real Estate market, in keeping with the global processes, survives a ride along the roller coaster with rapid rises and unpredictable directions.

The increase in construction costs and high demand for new apartments facilitated by the pandemic contributed to a sharp increase in prices for new projects outside the Centre of Riga. The first sharpness of price increases had already been observed since the beginning of 2021; by 2022, major Real Estate developers reported a consistent price increase of between EUR 10 and EUR 20,000 every few months. In the turn of 2021/2022 Aigars Šmits, Chairman of the Board of the Latvian Real Estate Association (LANĪDA), strongly invited the buyers of new housing to be guided by a new cost note, i.e. It’s time for a person to get across a new border or feeling about what is “cheap” - EUR 2,000 per square meter.

This became the price at which customers of an economy-class apartment, whose demand is consistently the highest, have to expect. As the main reason for high demand, Real Estate specialists highlighted bank-supported lending for new projects. In the Real Estate corridor, it is estimated that a decrease in prices or a return to the former position is no longer possible. 


At present, the sector is facing a new challenge, namely the impact on the Latvian economy of the Western sanctions imposed on Russia.

The previously outlined reality of prices and market activity gradually formed during the pandemic period, but on 24 February 2022, the military aggression launched by Russia against Ukraine, with shock capacity, turned on a new reality in the Real Estate area. What will be the prices in war/post-war conditions - it is not yet possible to predict. Unfortunately, we are in the epicentre of the events! The Estonian Real Estate market in the nearest neighbouring country is now numb in the expectation of the latest news, and there is a clear slowing down of the development of new projects. In Latvia, buyers have become more cautious and they are waiting in relation to making decisions on the purchase of housing.

As a result of the war-induced processes in the global economic dimension, the strongest direction of Latvia’s economy will be the sanctions regime imposed against Russia and Belarus. Already today, there are clear challenges related to the availability of energy resources and rising prices, thus also rising raw material prices. The US sanctions against Russian energy resources have already been introduced, and Russian energy imports into the EU will also be significantly lower in the foreseeable future. Russia is also a significant importer of timber and metal in Latvia — as a result of the sanctions introduced and the interruption of cooperation between individual companies, there may also be a shortage of construction materials and an increase in the prices of available building materials, which unfortunately does not correlate with the expected decrease in solvency. Insolvency of a significant part of society is inevitable, because it is undeniable that Russia has been a serious trading partner for Latvia so far. Businesses related to exports to the CIS countries - Russia, Belarus and Ukraine in particular - are expected to have a challenging time in finding routes to a new market.

Experts from Corvin Real Estate Ltd. also call to bear in mind that the Real Estate market is highly unprotected from political decisions. Currently, residence permits for Russian non-residents who are already in Latvia were not revoked, but by outlining the situation if they were abolished and these people would start selling their exclusive properties - a large number of Real Estate in one segment would enter the market simultaneously, which, admittedly, would create a certain chaos. Similarly, what is difficult to predict with regard to the acquisition of exclusive property. Although the exclusive segment properties in Jūrmala and Rīga were recently purchased by local buyers, non-residents also accounted for a significant share of the buyers. If due to the current situation, they will stop doing so, serious losses to Real Estate developers are expected. The expropriation of Russian oligarchs’ property in Great Britain - without a legal decision - can be seen as an example of the continued precaution of non-residents. While such behaviour is fully welcomed in the current circumstances, it will also make it prudent for investors from other countries.

The Real Estate market has great inertia, so it will take its shapes full of the expected consequences only with a greater distance of time - it is impossible to sketch the course of events or draw any conclusions at this moment. If, at the beginning of the year, Latvia’s Real Estate development prospects (as well as the overall economy) were assessed as very promising, at present several factors suggest the opposite. Of course, much depends on how long the war will be and what it will end with. The uncertainty is enormous.

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