Investing in Eastern EuropeForeign investors are fuelling a property boom in Riga, where capital growth rather than rents are the attraction. Daniel McLaughlin reports
WHILE St Petersburg was long ago dubbed Russia's "Window on the West", in Soviet days a stronger European breeze stirred the bustling and elegant city of Riga.
Set on a broad stretch of the Daugava River a few miles from the Baltic Sea, the old Hanseatic port was the main commercial and industrial centre on the western flank of the Soviet Union, and cultural traffic flowed with trade between Riga and Europe.
Now, more than two years after Latvia's 2.3 million people joined the European Union, Riga is still a vibrant conduit between east and west - a city in which half the residents are ethnic Russian, ex-pats are establishing regional headquarters for multinationals, and budget airlines are depositing growing numbers of tourists.
Many of those visitors to Riga now savour its pristine old town, admire its clusters of superb art nouveau architecture and cast an eye over its clanking building sites with more than passing interest.
In its global property price index for the second quarter of this year, estate agent Knight Frank International awarded Latvia top spot, saying house prices had grown an extraordinary 45 per cent; Bulgaria lagged in second place, with 20 per cent growth.
Foreign investors are fuelling a boom in Latvia that is underpinned, analysts argue, by rising local wages and an expanding mortgage market, both of which are expected to grow further as the country moves towards adoption of the euro.
Latvia wants to start using the single currency in 2008, but 2010 is a more realistic date, as it struggles to curb high inflation that is a side effect of rapid economic growth, which is expected to continue at a rate of about 11 per cent this year.
While monthly wages are increasing, they are still the lowest in the Baltic region at about €415 gross, a fact that translates into relatively modest rental yields for properties whose capital value is spiralling.
"Latvia is more about growth than rental income," said Sandra Berezina, a property consultant at Someplace Else, an agent that is active across the Baltic region.
"In central Riga, you could get a monthly rental of €500-€600, but most people focus on capital value than banking on rent to cover mortgage payments."
Gillian Coyle, sales director at CPS Overseas Property Advisers, urged potential buyers not to rely on rental yield to cover the mortgage.
"There is usually a shortfall," she said, "but Latvia is very promising for capital appreciation because it is stable and safe, both politically and economically, and appears to many people to be not unlike Ireland was a few years ago."
Most foreigners buy apartments off-plans in Riga that are due for completion in the next one to two years, rather than renovated older properties in the heart of old Riga, where many buildings are protected, traffic is restricted and parking a perennial problem.
Ms Berezina quoted prices of €2,500-€3,000 per sq m in central Riga - where a large, sophisticated new town abuts the old city - and about €1,000-€1,500 per sq m on the outskirts of town, which are expected to develop rapidly in the next few years as transport links improve and locals are priced out of city centre property.
Ms Coyle said CPS was offering apartments ranging from studios to three-bedroom properties costing €130,000-€300,000, and could arrange furnishing and management services in Riga through its local partner Ober-Haus, a major Baltic estate agent.
"Latvia has been on the radar of the really savvy investor for a few yearsbut in the last six to eight months we've seen much more general interest," says Charles Rodger of Arc Property.
"As well as being driven by local demand, the market is seeing more and more UK and Irish buyers, helped by generous local mortgage rates that allow foreigners to borrow around 80 per cent of the full property price, and Latvians to borrow 100 per cent."
Mr Rodger also warns that rents will not necessarily cover mortgage payments, but notes that buyers of many off-plan properties are seeing their apartments grow considerably in value before they are even completed.
"There are some renovated properties and we can source specific demands, but most purchases from us are off-plans," he says, citing prices of €2,500-€3,000 per sq m in central Riga, and €4,000 for the old Town.
OUTSIDE the capital, the coastal town of Jurmala is the most sought-after location for locals and Russians seduced by its decades-old reputation as a premier Baltic resort.
Prices of more than € 5,000 per sq m are quite common in Jurmala, Mr Rodger says, noting that Arc is now marketing the first mass-market, multi-apartment development to be built in the town since changes were made to local planning laws.
But he agrees with other Baltic property experts that Riga is Latvia's main draw for foreign buyers, particularly with ambitious plans emerging to redevelop the neglected western bank of the Daugava, which affords fine views of the old Town across the river.
The bureaucracy of property-buying is simple in Latvia, agents said, and Ms Coyle insisted that a deal could be completed within six weeks. She said buyers should factor in costs of about 5 to 6 per cent of the property price, the most significant of which are likely to be agents' fees and stamp duty of 2 percent.
Mr Rodger urged potential buyers of land or an old house in Latvia to have a lawyer check for any ownership disputes lingering from Soviet days - a problem that does not arise for those interested in the new off-plan developments.
Arc Property 00 44 208 7898100
CPS Overseas Property Advisers
01 61 360799
Someplace Else 00 44 207 7312200 Ober-Haus 00 371 7284544
Tucana Investment Property 00 44 207 0961247
My Home Latvia 00 44 208 5525920/00 371 217087
