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The change in the market structure has been the central development story in the Baltics for several years, but in the second quarter of 2020 we saw more rapid changes in this direction. In all three Baltic capitals, there was a significant decline in transactions in the secondary market and a steady increase in transactions in the new apartment segment, as a result of which 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.
Although in the second quarter the volume of transactions with Soviet-era standard-type apartments in Riga 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 contrast, in both Vilnius and Tallinn, average price changes were much faster, at 19.2% and 7.7%, respectively. In the neighborhood, the rise in prices was driven by a higher share of transactions with new (and more expensive) projects and the resulting structural changes.
The increase in the average salary in Riga slowed down to 3.5%. The crisis has hit those on lower incomes harder, as workers’ wages in the more affected sectors are well below average, and the rise in unemployment has been 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 share of transactions in the secondary market fell sharply due to the pandemic. However, most likely, the market structure typical of Riga, where Soviet-era standard-type apartments dominate, 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.
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