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International Internet Magazine. Baltic States news & analytics Thursday, 28.03.2024, 23:38

Financial Times: Russian buyers have deserted Latvia’s high-end property market

BC, Riga, 16.04.2015.Print version
The British newspaper Financial Times has written a special news story about the substantial reduction in the interest Russian buyers have in Latvia's high-end property market, cites LETA.

BC's photo.

''When the vodka flows this summer in the glamorous Latvian seaside resort of Jurmala, a playground for Russia’s well-connected wealthy, it will leave a bitter taste. East-west tensions over the conflict in Ukraine have combined with the slowdown in Russia’s economy to place a cloud over this town — and raise doubts about its high-end property market,'' the newspaper writes.

 

The newspaper points out that until recently, Latvia has been a popular destination for Russians seeking property. A quarter of the country’s two million people are ethnic Russians, and some 37% of Latvians speak Russian as their first language.

 

''In the eastern border region of Latgale, Russians have been snapping up cheap dachas as summer houses. But it is the capital Riga, and its coastal satellite of Jurmala, where demand for property has been strongest. Until last summer, Russians could gain residency rights for an investment of EUR 150,000, the cheapest deal in the EU,'' the newspaper writes.

 

The Financial Times goes on to say that Latvia was regarded as a handy “emergency airport” should the situation in Russia deteriorate. More than 10,000 Russians have obtained Latvian residency under the program.

 

''The big money sought high-end property in Jurmala, with the town attracting a who’s who of Vladimir Putin’s Russia: oligarchs, politicians, entertainers and mafia figures. It was joked that the combined wealth of Russians enjoying a USD 34,000-a-head VIP table at the town’s concert hall exceeded Latvia’s entire budget. No wonder Jurmala was nicknamed “the Latvian Rublyovka”, after the street in Moscow’s southwestern suburbs that is home to some of Russia’s wealthiest people,'' the article goes on to say.

 

Now questions are being asked about whether Russian demand for high-end property will hold up — or whether some bargains might be on the horizon.

 

''The top end of the market in Latvia is already down 20-30%,” says Elena Marinicheva of estate agents Evans in Moscow, which says demand for property is down 90%. “There are far fewer Russian clients. Property viewings are taking place, but deals are rare.”

 

Russians on the EU’s blacklist are not getting rid of their property yet, but are holding on — they can rent out, even if they cannot visit, says Irina Alazova, head of real estate at Mercury Group in Riga.

 

 

''Jurmala already feels the worsening situation, but everyone is waiting for the summer,'' she says. ''It is a period of uncertainly, no one knows what will happen.''

 

Property prices have been growing at double-digit rates for several years, but are now down about 10%, says Martins Kazaks, chief economist in Latvia for Swedbank of Sweden. But the market is not homogeneous, so it is hard to tell whether the lower prices are simply because people are buying cheaper properties in worse locations.

 

Apart from the EU blacklist, two more factors are weighing on prices, estate agents say.


Deniss Kairans, managing director of Colliers International in Latvia, says: “If we are talking about the high end in Jurmala, then of course demand from Russian buyers is much, much lower.”

 

Geopolitics is playing a role in spooking Russian investors, he says, but most of all the falling rouble has made it much more expensive for them to buy. The rouble slumped by almost half against the euro last year, and although it has strengthened since January, it is still a third weaker than it was in the middle of last year. Prices, having risen at double-digit rates, are down 10%, the Financial Times points out.

 

''The other factor is Latvia’s decision last year to raise the minimum investment required for residency rights to EUR 250,000, which combined with the weakening rouble to make property unaffordable for many middle-class Russians with an eye on Latvia. As the deadline for the change in the law approached there was a rush to buy, but then the market collapsed,'' the article goes on to say.

 

In August 2014, Newsec, a property consultancy, registered 350 transactions in the Riga residential market with buyers from Russia and the CIS; the following month there were three.

“This is purely related to the residency permit, not the Ukraine-Russia war,” says Neringa Rastenyte, a Baltic specialist for Newsec.

 

''Russians still dream of buying a safe haven in the EU via Latvian property, but most of them simply cannot afford it any more,'' according to Filipp Berezin, editor of Russian property website Prian.ru.

 

''With Russia teetering on the edge of a deep recession and the situation in Ukraine unresolved, it looks like Russians may be shut out of Baltic residential property for a while. Paradoxically, however, the deeper the Russian economy falls into recession, and if political stability does not improve, there will be wealthy Russians looking for an escape route for their capital, fuelling demand for property abroad,'' the Financial Times goes on to say.






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