In Q1 2022, when compared to Q1 2021, the general construction cost level in Latvia has increased 16.6%, according to data from the Central Statistical Bureau of Latvia. In a situation when prices of construction materials and energy resources are on a rise and supplies of construction materials are delayed, Latvia’s biggest real estate market players are still able to reorganize their partners and find new solutions.
However, some companies have ended up in a situation when they are forced to make painful decisions – shut down workshops or halt construction work entirely.
«Everyone suffers if a market reaches a crisis. To reach an agreement with partners, we all have to sacrifice something. Responsible real estate developers have to balance their business modules, reducing profit indexes in the process, to complete all ongoing projects,» explains Estonian real estate developer Kaamos manager in Latvia Guntars Cauna.
The price surge and delays with supplies caused big problems in 2021. However, the situation got even worse after the start of Russian-Ukrainian war,
especially considering the surge of energy prices. The shortage of workers in the construction sector remains a major problem as well. This is why Latvian Builders Association (LBA) warns of an approaching state of emergency in the sector, which may delay or force putting important construction projects on hold.
At the same time the situation with apartment buildings’ heating support programme is confusing. «On the one hand it is necessary to increase energy efficiency of buildings more than ever due to energy prices and Europe’s green course, but on the other hand – construction material price rise and availability makes the situation difficult to plan out,» said the head of LBA Normunds Grinbergs.
With the problem of energy efficiency of old apartment buildings now in view more than before, there is high demand for high quality new project housing that meets nearly zero energy building criteria. This is further promoted by flexible lending conditions – certain banks are prepared to offer buyers of energy efficient housing special loans at favourable conditions. However, Latvia remains behind its neighbours Estonia and Lithuania in this regard.
«Riga has the slowest housing development rate in the Baltic region. This is why we expect competition on the real estate market to become fiercer in the coming years. Buyers will surely benefit from this. Although this does not mean new housing prices will drop, the market will become more demanding, and reputation of developers, as well as energy efficiency offers will play a bigger role than before,» said Guntars Cauna.