Analytics, Latvia, Real Estate

Experts of the field point out that in 2009, the same processes and tendencies as in 2008 will be topical. Project development market will face stagnation, market liquidity will be close to zero. It is expected that insolvency and bankruptcy cases will apply to both developers and households, writes LETA.

There is one main tendency – the prices and the demand go down, whereas the offer surges, points out the Parex Asset Management president Roberts Idelsons.

Idelsons expresses an opinion, that a certain stage of economy has come to an end.

"Earlier, foreign funding and money from internal resources flew in the real estate market. Everybody tried to gain profit and believed that there were no risks. [..] The time of illusions is over. It is clear that the real estate market is just another sector of economy and here the same methods as in other industries should apply. The main principle is to act professionally. 15% to 20% is a normal profit rate, previously the figures were significantly larger and this contributed to overheating the economy. Now some even operate with losses."

Member of the board of the developers Rotermann Latvia Valdis Purvinskis prognosticates that the weak market players will go bankrupt, whereas the strong companies will remain active.

Investment fund NCH Advisors Inc. representative Karlis Cerbulis expects that the real estate market could hit the bottom point this year and could stabilize again at the end of the year. "It will not be easy for any businesses. However, the worst situation will be in the housing market. There is still a large number of real estate properties that have not been sold and now it is likely that the potential buyers could choose to stay also further on in their current houses," Cerbulis said.

He explains that "According to our calculations, currently it is cheaper to construct a new house than to buy one from other developers, even if they sell it at the production cost. This means that many developers have been left without hope. We are experiencing a real deflation – regarding costs for steel, concrete, gas and labor. It is now possible to build a house spending approximately two times less than a year or two years ago. The price could be EUR 800-EUR 900 (LVL 560- LVL 630) per square meter," Cerbulis underlines.

Also chairman of the board at Dominante Capital Rafails Deifts agrees that housing prices are likely to drop this year, however, he says, it is difficult to prognosticate, by how much exactly.

As Purviskis concludes, now those with money will be able to purchase very good and very cheap apartments and houses. The question is, whether banks will provide money for purchasing housing.