Interest peels off a little
Ksenija Ijevleva, market analyst of the real estate company “Latio”, says that despite the more cautious decision-making of market participants, the increase in the interbank loan rate “Euribor” and other obstacles, the housing market has not completely stopped.
“Deals are still happening, but at different rates in different segments. For example, at the moment there is quite a demand for properties that can be called “investment objects” – these are houses that do not require additional investment, in which a tenant already lives and the rental yield of which is greater than 4%. Currently, those who have savings and who are looking at the property from the investor’s point of view for at least 10-15 years are looking for such properties,” the “Latio” analyst explains the situation.
She can say that there is still activity in the segment of new projects, because its target audience was less affected by economic factors – they are young specialists who work in stable jobs with high and moderately high salaries. On the other hand, in the serial apartment segment, objects are also in demand – tasteful properties of a small area in good technical condition.
K. Ijevleva points to the cyclicality of the real estate market. We have seen the market rise in recent years, but it is not yet possible to draw clear conclusions as to whether the peak has already been reached. At the same time, according to the expert, such a scenario as we experienced in 2008 is hardly possible.
Serial apartment prices are falling
Looking at the overall situation, Māris Laukalējs, head of the Appraisal Department of “Arco Real Estate” company, draws attention to the past year. Then there was quite a significant price increase in the serial apartment market until May, when even a 2% increase was recorded compared to the previous month. Growth had stopped in the summer months, but starting from September and October, a very rapid price reduction was observed in this segment.
M. Laukalējs adds that initially, with regard to last year, it was even estimated that the prices in the serial apartment segment could increase by 7-8%, or even 10%, but with the fall in prices in the fall, the annual growth decreased to 1.6%.
“Arco Real Estate” market review shows that in December, compared to November, the price of serial apartments fell by another 0.2%. Last month, the average price per square meter of apartments in this segment decreased by 0.5% for one-room apartments, 0.2% for two-room, three-room and four-room apartments. In December, the average price of serial apartments dropped to 916 EUR/m². This is significantly – by 43% – less than on July 1, 2007, when the average price of an unrenovated serial apartment reached an all-time high of 1,620 EUR/m², according to the company’s review.
According to M. Laukalėja, one of the reasons for the drop in prices in the serial apartment market is the increase in utility bills caused by the increase in the prices of energy resources. Thus, according to the expert, those whose apartments were empty and who planned to sell them as expensive as possible, anticipating the high additional costs, had decided to put them on the market.
“In the serial apartment market, we saw a decrease in prices in the second half of the year, but we did not see this decrease in the “new projects”, and I would rather say that there was a relatively large increase in prices. In the serial apartment market, homes are continuously bought and sold, while in the new apartment segment, a building is built and the existing apartments are sold, and then there is the question of how much supply is left. Currently, it is not like in Soviet times, when residential houses are constantly being built. Last year, at least in its first half, the offer in this segment of apartments did not increase, but rather decreased,” explains the market expert. This factor keeps the price high enough and ever increasing.
When asked about the percentage of the increase, M. Laukalējs points to certain nuances that make it difficult to calculate immediate price changes. “If there are many transactions in the serial apartment market, entries for new projects appear in the land register at the moment when the building is fully put into operation. On the other hand, purchase contracts are concluded already during the construction of the house. Therefore, if we look at our apartment price index, we can see that the figures reflected there for new apartments were significantly behind the current offer price. This is also logical, because a large part of the contracts have been concluded a year or a half in advance,” explains the real estate market specialist.
The second, in his opinion, important nuance – in Latvia there are very different buildings of new projects – both in terms of location, design and decoration. Therefore, it is much more difficult to talk about some kind of average number here than in the serial apartment segment. However, in numerical terms, the price of the apartments registered in the land register at the end of last year could be around 1,850 euros per square meter. At the same time, the market offer price at the end of last year could be around 2400-2600 euros per square meter.
You have to wait until spring to judge
From what both experts said, it can be understood that greater clarity about where house prices will go could emerge in the spring. “Currently, we observe that buyers in the housing market are hoping for a price drop in the spring, renaming it – a rise. Both scenarios are possible,” says K. Ijevleva.
M. Laukalējs says that it is quite difficult to make forecasts until April. “Nevertheless, looking at the overall trend, I believe that even in the coming months, a price reduction is still possible for serial apartments. The hardest winter months are not over yet, so a price reduction is still possible until April, but speaking of this year as a whole, I think the price will be measured with a plus sign,” M. Laukalējs assesses.
Another forecast made by the representative of “Arco Real Estate” is the recognition that there will be less transaction activity in the apartment market this year, especially in relation to new projects. Namely, the number of transactions will be less than last year. The new apartments are expensive enough, and here the aim of the European Central Bank to reduce inflation by raising interest rates will certainly work, according to the real estate market expert. Namely, when refinancing rates are raised, the Euribor rate also rises, which is used as a basis for calculating the bank loan rate. “If we talk about expensive apartments, the value of which is approaching 200,000 euros, then in this segment the increase in the Euribor rate greatly affects the total purchase amount. This could certainly deter some people from making this type of purchase,” M. Laukalējs assesses. According to him, the first three to four months of the year in terms of price changes for serial apartments will be close to zero or with a slight decrease. On the other hand, regarding the “new projects”, the expert expresses the opinion that there will be no drop in prices.
According to him, the price range for these apartments could be around 2600-2800 euros per square meter. At the moment, their price could be between 2300 and 2600 euros per square meter. However, if we talk about the year as a whole, the price could still increase. “Many new projects do not come to the market. We know that some developers have put their plans for construction, which should have started last year, on hold due to construction costs, so the volume of the offer will not increase. On the other hand, if there is no offer, then the price either stays at the current level or goes up,” says M. Laukalējs.
