The rise of prices of raw materials and construction costs will be the main reason for a future price rise in new projects. Leading real estate developers in Latvia doe not expect prices to go down on the real estate market, as concluded in the discussion held by Latvian Real Estate Association (LANIDA) and Citadele Bank.
Prices in new projects in micro districts have equalized with apartment prices in Riga’s historic centre. This is partially due to the fact that many buildings in Riga’s centre are in poor shape and people’s readiness to purchase housing outside the city is on a rise because of Covid-19.
Heating bills will drastically change people’s views on apartment prices and ways to save up on mortgage loan and public utilities in the long run.
Data indicates that heating bills in energy efficient houses and new projects are on average approximately 3.7 times lower.
Due to the rise in construction costs, no new projects have appeared on the real estate market since March. On top of that, approximately half of the available apartments are already reserved. With that, there is reason to expect a deficit of new apartments. These factors will not help reduce prices in the near future.
From the developers’ perspective the biggest challenge is related to the rise of construction prices and the sale of apartments at higher prices than expected, which is largely a result of the economic situation. What makes this goal more difficult is that apartment prices grow more quickly than residents’ wages.
Developers with construction and development experience are in a better position.
«Despite different external factors, demand for mortgage loans in the first half of 2022 was stable and even higher when compared to the first half-year of 2021. The average loan amount was about EUR 84 000. For new projects this amount reached EUR 100 000. 70% of borrowers used the money to purchase apartments and 30% used the money to purchase or build private homes,» Citadele Private Banking services director Jānis Mūrnieks explained the ongoing trends in demand.
«Currently there is no reason to expect prices to go down, especially for high-quality new projects. The prices of construction materials, labour resources and energy resources will not go down soon. The households that cannot afford apartments in new projects will first look at options to acquire apartments in new projects, but farther away from Riga, such as Ādaži or Salaspils. Only after that will they review the possible options on the second-hand market or decide in favour of renting,» says LANIDA and Vestabalt board member Līga Plaude.
«Demand for new housing has not gone down, but we can see clients are in waiting, because in a situation of uncertainty people are worried about growing costs in all areas. Whether now is the best time to get a new home depends on the buyer – on the one hand, people have to understand that apartments will not become cheaper soon, whereas on the other hand every person should carefully consider their need for a new apartment and their ability to afford it,» says Arco Real Estate board member and Housing Fund’s Sales Department head Ieva Jansone.
«There are three important factors buyers should keep in mind. Construction price rise, heating energy price rise and the expected mortgage loan interest rate growth. I believe the correct course of action would be taking a loan and getting an energy efficient apartment or house to save money on public utilities. It would be wrong to put off making the decision to purchase housing and planning getting an energy efficient apartment in the future, which would make public utilities and high mortgage loan interest rate an unreasonable financial burden,» says Alliance of Real Estate Developers board chairman Mārtiņš Vanags.
«Although construction materials market is starting to show signs of recovery – the price fluctuations are no longer as significant for metals or lumber – the growth of costs in the construction sector is unlikely to stop in the near future. Apartment deficit on the first-hand market has already reached its historically highest point in the last decade, which will only further increase price growth due to high demand. We don’t know when this price rise could stop. However, if we look at Vilnius and Tallinn, where the price per 1 m2 in new projects is at least 25% higher than the price in Riga, there is still room to grow,» said Bonava sales and marketing manager in Latvia Kaspars Ekša.