Forex Rates Philippines
House Prices Tumble in Latvia – the end of the boom in house prices in the Baltic
House prices have started to decline in the area of Riga – a fall of 3.5% in June 2007, following a decrease of 1% in May 2007, according to the main Latvian real estate agent Latio. Prices have fallen "by first time in history, "says Latio, which if not quite accurate, emphasizes the sense of shock.
These figures are consistent with the warning signs recent. But even more striking in that year after year to Q1 2007, Latvia was Europe's strongest performing housing market with price rises house of 44.23% over the year, according to Central Statistical Bureau of Latvia.
The Global Property Guide ( www.globalpropertyguide.com ) Believes these latest figures signal the end of the Great Baltic House price boom. Estonia began to fall before Latvia, as is normal in the Baltics. We have long suggested that low income rentals in the Baltic countries means that investors should be very cautious.
The decrease Housing prices also reflects several serious economic problems that have accumulated in Latvia:
• The current account deficit increased to 26.3% of GDP in Q4 2006 from 15.2% a year earlier.
• Inflation was sharply up to 8.9% in April 2007, an increase of 6.5% last year past, and 1.9% in 2002.
• Loans to residents grew by 60.4% in the year to Q4 2006 (58.2% and 61.7% in the past two years).
• Interest rates in the long term are very high.
(See Global Property Guide 's coverage of Latvia)
In (February Standard & Poor's S & P) put on negative watch its long-term rating of Latvia forex-denominated liabilities, and then the May 17 downgraded to BBB + Aa. This brings them back to Latvia's rating was in 2002.
The lats, pegged to the euro since January January 2005, was under pressure in February in response to the review of S & P, and the Bank of Latvia had to intervene. The Euribor interest rate on Euro loans variable rate rose to 10% in June 2007 of 5% this January. Obviously, this increase in interest rates has had a significant effect. The same is true attempts government to cool the market through the banking system. So too have recent legislative changes, for example, the imposition of a tax of 25% personal income in real estate sold within a year of purchase.
Painful consequences of adjustment needed
Until recently, Latvia was Europe's No. 1 performer in housing prices. Latvia is now in deflation mode, with house prices and restricted spending.
Local actors can be expected to adapt to new realities, but with a delay, which can be expected to exaggerate the crisis. In June 2007, 19 new housing projects themselves known, after 15 projects in May, April, March and January of this year (February saw a rise in the apartments of the project sets up to 26). This means that in historical terms, a large number of new apartment projects continues to come on the market.
Lower returns signal residential Stop!
The price of used good quality apartments in key locations in the center of Riga ranges from € 2,900 to € 3143 per square meter according to Global Property Guide (survey conducted November 24, 2006). Houses in similar locations are slightly cheaper, ranging from € 2,521 to € 2,700 per square meter.
These prices are high relative to GDP per capita in Latvia, being on par with the Scandinavian countries.
In Riga, the city center of average prices rose from around € 1,264 per square meter in August 2004, to about € 3,011 in late 2006 – an increase of 138% in Just over two years.
Meanwhile, in Riga average monthly rents have increased, but not much about, around € 8.20 per square meter to about € 12.64 per square meter – An increase of around 54%. Riga rental income returns (average of all sizes) have fallen so much in the last two years, of about 7.85% to an average of 5.04% (the figures in the table above do not represent the average yields, but yields for apartments of 120 square meters).
These yields are not reasonable. However, in the particular situation of Latvia, such moderate yields, in the context of a very strong current the supply of new apartments and a sharp rise in local long-term price of money, make us very cautious.
Unless the economic cycle has disappeared from the economy, we believe that a cyclical peak is near, and that by the time investors should pause.
Editor and strategist:
Montagu-Pollock Matthew
Phone: (+632) 867 4220
Mobile: (+63) 917 321 7073
Email: editor@globalpropertyguide.com
Address:
Global Property Guide
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