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The number of completed new apartments available on the market in Riga has decreased to the lowest level in the last 10 years

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According to Colliers data, in March 2022, approximately 1,130 completed apartments were available for sale in new projects in Riga, which is almost half as much as a year ago. About the same number of new apartments available for purchase were under construction. The volume of such housing can be redeemed within one year, maintaining the sales rate of 2021. What the current situation with the availability of new housing mean for the industry and consumers, is explained by Agija Vērdiņa, associate director at Colliers Research and Advisory, and Kaspars Ekša, sales and marketing manager of Bonava Latvija.

 

Several years after the global financial crisis of 2007-2010, there was still a relatively large stock of apartments built in Riga before the crisis. These apartments were actively sold until 2017, when new developers entered the market and  new projects resumed faster construction. Starting from 2018, the number of new apartments on the market gradually increased. At the same time that the average salary increased and bank financing became more accessible, sales volumes also grew, creating a healthy balance between the built and the purchased. The situation changed in the spring of 2020, when the world was shaken by the Covid-19 pandemic. Due to uncertainty, construction volumes slowed down for a while, but contrary to expectations, the demand for new housing increased, resulting in a sharp decline in the number of completed apartments available on the market. Even projects that were previously of little interest to buyers were sold out. The number of transactions with apartments under construction also increased rapidly.

“Since the beginning of this year, the number of completed new apartments available on the market in Riga has decreased by about 300 apartments, but compared to March 2021, the volume of such apartments has almost halved. The dramatic situation seems to be dispelled by data on apartments under construction—there are currently around 3,500 of them, but in reality most of them have already been sold and some are reserved. This means that in total there are about 2,500 new apartments available on the market, but many of them will have to wait more than a year for them to be actually completed and buyers to gather. If we assume that the start of new projects in the current conditions caused by the war will be cautious and slow, we will observe an even greater shortage of new apartments in the second half of next year. If this scenario materializes, such housing will become a pronounced deficit product, for which demand will exceed supply, resulting in a further increase in the sale price of new apartments,” says Agija Vērdiņa, associate director, Colliers Research & Advisory Department.

Out of the apartments under construction, the largest number, or approximately 16%, are currently apartments in projects built by the market leader, Bonava Latvija. Similar to the market average, 53% of these apartments have already been sold

"It must be acknowledged that we, like other players in the construction industry, have been affected by the tense geopolitical situation in Europe. The availability of certain building materials has become more challenging, supply chains have become longer, and construction costs have risen sharply. This situation will clearly have an impact on both the new housing market and the construction industry as a whole. We are already seeing a change in the plans of some contractors, but I think a clearer situation will emerge in the second half of the summer, when some time has passed to adapt to the new conditions and industry analysts have compiled data for the second quarter,” says Kaspars Ekša, sales and marketing manager at Bonava Latvia. At the same time, he confirmed that, despite the difficulties, the company has decided to continue developing all its projects.

As at the beginning of the Covid-19 pandemic, it is still too early to draw any concrete conclusions, but it is clear that neither construction costs nor the prices of new apartments will fall in the near future. This will force many developers and buyers to make a choice: developers will have to decide whether to start construction at all in the current market uncertainty, significant construction costs and geopolitical situation, without losing sight of the risk that banks may no longer issue mortgages due to high housing prices. Buyers will need to understand whether they will be able to save on the down payment at all in the face of high inflation and whether they will be prepared to settle for a potentially smaller—but more affordable—home.

As the forecasts for the availability of new housing deteriorate, residents who want to buy an apartment in the new project will face two main challenges. First, as the supply of apartments in the primary market declines, residents may be forced to look more actively at the secondary market where it is much more difficult to find energy-efficient housing with low living costs. Second, the population is already facing, and will continue to face, an increase in prices of apartments under construction—prices have increased by 7% in the last six months, reaching an average of 2,250 EUR/m2 in March 2022.

Under the current circumstances, the new apartment market is facing challenges. Apartment prices are growing faster than wages, with inflation absorbing part of the wage increase, as a result of which, the availability of new apartments is declining, which has been significantly better for Riga than in neighboring capitals. At the same time, it should be noted that developers in Vilnius and Tallinn have not been prevented from building significantly more apartment buildings, as well as selling more at higher prices. Thus, time will tell whether wages and mortgage conditions will keep pace with rising prices for new housing, and, accordingly, whether and how the desire of developers to build and the desire and ability of the population to buy will change.


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Working in the industry since 2014. Previous experience working within bank sector with distressed real estate portfolios in Latvia and Lithuania as a real estate analyst. Joined Colliers in 2018 as senior real estate market analyst, a year later was promoted to Associate Director. Working with private clients providing research within all commercial real estate sectors with strong focus on retail & residential sectors as well as providing ongoing market research reporting and data.

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