Following the Realtor
Although housing is only one of the components of the real estate market, to begin with, every self-respecting gentleman, and lady too, certainly needs a place that can be affectionately and casually called "my home - my fortress". For those Latvian gentlemen (and ladies) who, for a number of even quite respectable reasons, did not manage to acquire a fortress during the period of accumulating initial capital, now it seems extremely difficult to do so.
Of course, everyone has long forgotten about two- and three-room apartments on the secondary housing market for one and a half thousand dollars in the late 80s - early 90s of the last century. That, as they say, was "long ago and not true". However, current housing prices in Latvia are just as inconsistent with common sense as the aforementioned ones.
First of all, for the monstrous distortion of the Latvian housing market, realtors must be thanked. It was they who created and are now trying with all their might to maintain the "seller's market" format in this segment. And this is how it happened. In the times of wild market relations, realtors quickly convinced the public that only with their participation would it be possible to carry out a safe, legally competent, and mutually beneficial transaction for both seller and buyer in the purchase and sale of housing. The fact that practically 99% of real estate transactions took place with the participation of at least one, or even several, intermediaries with excellent appetites, from the very beginning affected the market structure and pricing policy. For a long time, speculation was conducted only on the secondary housing market. And there, from a "previous life", a situation had developed in which there were more people wanting to have housing than the housing itself. Realtors were greatly helped by the withdrawal of Russian troops: they bought apartments from military families in bulk at $5-6 thousand each, rented them out for a year or a year and a half, and then sold them at a price at least double the purchase price. With the proceeds, they bought the next new housing, and the scheme repeated itself, growing in geometric progression.
Phantom Apartments
In "Luzhkov's" Moscow, after the default it had survived, a second construction boom was already unfolding - scaffolding could be seen at every step. In Riga, only the first timid new buildings had appeared. At first, these were unfinished constructions from the late stagnation period, in which unusually spacious apartments with rough finishes were sold at prices unheard of at that time - from $100 to $200 per square meter. It was already the eve of the new millennium.
After the first few dozen apartments in the new buildings of capitalism slowly but surely acquired their owners, construction firms stirred, and realtors partially reoriented to the new housing market. As long as construction was not going too fast, they not only kept up with the process but also completely controlled it. As a result, prices for new housing grew on average by 5-8% per month (in some segments up to 200% per year). In the end, it turned out that to this day in Riga, in houses built about three years ago, there are a huge number of apartments in which no one lives, but the owners have changed three or four times during that time. The cost of such apartments has increased 2-2.5 times.
Another boom - mortgage lending - brought a real buyer to this market. With an abundance of banks and competition among them, it was precisely mortgage lending that became, if not a source of main income for many financial institutions, then a very tasty morsel in any case. At first, the "wild buyer" who came to the market heated up by realtors grabbed everything at the "paper stage", which allowed builders to relax. After all, it is one thing to create a product that is to be sold, and quite another to formally work off already received and spent money.
From a "seller's market" to a "buyer's market"
Such excitement in the housing market, when apartments went like hot cakes, mobilized crowds of new investors - lovers of so-called "short money". Projects already numbered in the hundreds, and the number of new housing units exceeded 10 thousand per year. Realtors began to choke, while the price bar they had raised made the housing market practically inaccessible to the average-income buyer. In combination with rising inflation, an increase in the loan refinancing rate, rising prices for construction work and materials, the picture on the housing market no longer seemed so rosy. The realtors tried to make up for what they had missed in the new construction segment in the secondary housing market, which raised even more the already inflated prices for it.
As a result of all the above, the following situation has developed. A three- or four-room apartment on the secondary housing market today costs approximately €100-120 thousand. The price is quite acceptable, if not for one extremely alarming factor. The fifty-year service life of the youngest block houses, where such apartments are located, expires in 20-25 years. That is, just at the moment when the owners who bought them today make their last loan payment for the miracle property. It is for this reason that most banks have stopped lending for such housing, and if they do agree to such a risky step, it is on extremely unfavorable terms for the client.
As for new constructions, the number of apartments offered in them is about to exceed the demand for new housing. And if we add here residential properties in the hands of resellers, then supply and demand have already at least equalized. In addition, banks have recently been speaking more and more loudly about the rising cost of money and the possible revision of terms on already issued loans. According to modest estimates of financial experts, in the worst-case scenario, the cost of such loans could even jump by up to 70%!
Also to be added here are the government's offensive plans to levy a tax on the market value of housing and to introduce a 25% tax on resale of housing within three years of its purchase. Based on all of the above, it can be said with confidence that the noose around realtors' necks is relentlessly tightening. Their only straw to clutch at remains the stock of denationalized houses. But here, as a rule, no one is morally or physically ready to pay the price demanded by the realtor. In some new developments in Riga it already reaches €7-8 thousand per square meter. If you consider that 200 kilometers from Riga that money can buy at least two three-room apartments, the fate of realtors and, along with them, the hypertrophied housing market in Riga is most likely sealed. Then the "seller's market" will give way to a "buyer's market."
Record harvest from the potato field
As for real estate in the form of a land plot or a separate house, price growth there is even more rapid, and until recently deals were most often made according to the following scheme. A certain company, through a bribe, bought agricultural land in the vicinity of Riga for a symbolic price. Then the land was resold at a price close to the real one to another company, which again with the help of a bribe "bought" a decision from the local village council, as a result of which land for agricultural use became land for residential development. After that, it became about three times more expensive.
The next owner of the land "cut" it into pieces and sold it at retail, thus earning several million more. As a result, long before construction equipment appeared on the former potato field, its value had increased at least tenfold. In order to stay within budget and earn something despite such expenditures, builders had to refuse to connect utilities and develop infrastructure, although all of this was provided for in the contract of the end customer (home buyer). But the client had already paid the money, automatically ceasing to be of interest to the developer. To avoid prosecution by customers left without electricity, gas and sewerage, construction companies went bankrupt with gusto, after which the very same people gathered under new banners and together marched toward new capitalist achievements.
Of course, in addition to row houses and settlements in the middle of a former potato field, the market also offers one-off goods of the highest quality. If you are lucky enough to buy such a house directly from the owner or the construction company that built it, you can count on a real price - about half a million euros together with a land plot of 2.000 square meters. But today this is almost unrealistic - realtors cut off practically all such attempts. They themselves ask for such valuable real estate about two and a half times more, without giving any justification for the requested price. At best, they explain that somewhere nearby (or maybe not nearby) someone recently supposedly bought something similar (or maybe not similar) for exactly that (or maybe another) price.
True, with land plots this happens only in Riga, around the capital, and on the Baltic Sea coast. In Latgale, unsold fields and forests still remain at quite similar prices. By the way, according to unconfirmed information, last year several thousand hectares of land near the Latvian-Russian border were purchased through intermediaries by the disgraced Russian oligarch Boris Berezovsky. And allegedly most of the Jūrmala real estate was bought by "businessmen" from Solntsevo near Moscow. What don't evil tongues say!
Island of civilization in a wild sea
The most liquid and most promising real estate in Riga today is office space. Serious people with long-term plans work in this segment. Therefore, the market for this real estate is surprisingly civilized in nature.
If prices for retail premises in Old Riga, for understandable reasons, "bite" and average €30-50 per sq. m per month for rent and €4.000-5.500 per sq. m for purchase, then modern office premises in new office complexes literally in the very center of Riga can be rented relatively cheaply. Class "A" office premises - €16-20 per sq. m per month, class "B" office premises - €7-15 per sq. m per month, and class "C" office premises - €6 per month per sq. m and below. This gives hope that after the collapse of the housing market, the laws of civilization will also prevail there. After all, one need not look far for an example.