“The prevailing uncertainty led to a drop in prices and transactions in the secondary market, and the apartments in this segment became the first victims of Covid-19. This affected the market structure, reducing the share of this market segment in total transactions,” the bank said.
Taking into account that in all three capitals of the Baltic States in the second quarter of 2020 there was a significant decrease in the number of transactions in the secondary market and a steady increase in transactions in the new apartment segment, the share of new apartments increased.
“The decline in sales in the secondary market was mainly due to the higher sensitivity of this segment to macroeconomic conditions.
Citizens were more cautious in assessing their financial situation and were more likely to wait and not make new commitments.
In turn, transactions with new apartments, which depend on previously concluded contracts, continued, demonstrating higher immunity to external conditions, “explained the bank.
Swedbank also pointed out that although the volume of transactions with Soviet-era standard-type apartments in Riga in the second quarter decreased by 43% during the year,
The share of transactions with Soviet-era standard-type apartments in the total number of transactions still exceeded 50%.
The still high proportion of standard-type apartments also “pulls down” the average house price. In Riga, the average price increased by only 1% during the year, driven by the rise in new apartment prices, but constrained by the decline in Soviet-era apartment prices.
In both Vilnius and Tallinn, on the other hand, changes in the average price were much faster, showing an increase of 19.2% and 7.7%, respectively. In neighboring countries, the rise in prices was due to a higher share of transactions with new and, respectively, more expensive projects.
The growth of the average salary in Riga slowed down to 3.5% in the second quarter.
“This crisis has done more damage to those on lower incomes,
because wages in the more affected sectors are significantly lower than average, and the rise in unemployment was fastest for the less educated. In contrast, higher-income households, which are also buyers of more expensive new housing, have generally suffered less from the crisis. It has maintained and is likely to continue to maintain demand in this segment, “the bank said.
The bank also pointed out that the share of transactions in the secondary market decreased sharply due to the pandemic. However, most likely, the typical market structure of Riga, dominated by Soviet-era standard-type apartments, will change only gradually after the crisis, due to both the limited supply of newly built apartments and the higher prices restricting the availability of these apartments.