Latvia Real Estate

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Interest rates have decreased significantly and are the lowest ever - in the local currency they are now 3.62% and are converging with Euro rates in anticipation of joining the Euro-zone in 2008, this clearly has a significant effect on the Latvia real estate market.

The stamp duty charged by the Government is 2% of the total cost of the apartment. Stamp duty comes into effect on completion, i.e. once the contracts/deeds have gone through the notary and been transferred to the new owner.

There will be notary and POA and translation costs, the notary fees are normally around £200-300.

Foreign, non-resident, companies that sell real estate in Latvia, must deduct a final tax of 2% from the proceeds of the sale.

Overall buying costs, including the stamp duty will be around 3.5% of purchase price – again amongst the best in the world - which again has a positive effect on the Latvia real estate market.

As with the other Baltic nations, with incredibly low rates of borrowing and large amounts of equity, the Latvians can afford to buy, and so is a large demand locally for any new build property in the major towns – this is exactly what international investors want – a strong local demand on the Latvia real estate market.

Mortgage loans currently account for only 5% of annual GDP (EU average is 48%); it is predicted that over £500 million of increased lending will be spent on the Latvian property market in the next 5 years – this point cannot be emphasized enough – it means huge internal and external demand over the forthcoming years, and upward pressure on prices of Latvia property. To compare Latvia to other EU countries, mortgage loans in EU countries currently account for an average of 48% of their annual GDP – so around 10 times more than in Latvia - this will have a huge impact on the pricing of Latvia real estate, as even now demand outweighs supply.

Borrowing has picked up substantially in the country and Latvia’s interest rate (2.5%+libor) is largely unchanged. In 2005, a total of 3 billion euros were credited to individuals, 80% of this flowed into the Latvia real estate market. Analysts expect this trend to continue driven by demand for increased quality of housing – with both internal and external demand.

Lenders are aware of this fact and are quickly targeting a potentially huge and lucrative Latvia real estate market. As mortgages become more widely available and intrinsically cheaper, so local Latvians will be able to borrow more to push up their purchasing power. In fact borrowing rates for locals start as low as 1.8 % depending on currency, term, and other conditions. The maximum term is 40 years. Clients can borrow up to 95% of a property’s value using guarantees from the state home loan insurance company and demand is higher than ever, indeed the first quarter of 2005 saw mortgage loans exceed that for the same period of the previous year by 80 per cent.

For foreign investors, again this is a huge attraction about buying in Latvia. The major banks, such as Nordea and Hansabank (their contact details are in the Essential Information section), while not willing to lend as much to foreign investors, will lend 80-85% of the market value of the property. This “market value” is significant ie if you pay 60,000 euros for your property, and on completion it is worth 80,000 euros, the banks may be willing to lend you 80% of this market value, meaning you will not need to have any of your own money in the deal on completion. This borrowing to foreign investors means the Latvia real estate market is as attractive as any in the world.

Unemployment was 8.8% in 2005 - almost unchanged compared to the previous three years - but is less than 5% in Riga.

Net average national salaries increasing by an incredible 17 per cent in the first quarter of 2005 (real wages increased by 10.3 per cent), giving a huge push to the Latvia real estate prices.

So a very healthy trend, as locals have increased disposable income and the economy is clearly booming – but with a long way to go as it plays catch up with the rest of Europe.

Property tax/Council tax - At present, property tax (council tax equivalent) for individuals and compa¬nies is 1.5% of the net book value of the buildings and construc¬tions. As from January 1, 2007 the property tax will be subject to the cadastral value of the buildings and land. The valuation is determined by the City authority, based on the city district, and is normally equal or less than the property purchase price but is never more than the purchase price. In a lot of cases it tends to be a lot lower. However, there are various exceptions by municipalities and state that can be applied to the property tax payers.

Capital Gains Tax - On the sale of a property, you will be liable to capital gains tax on profits of 25%, however if you own the property for more than 12 months you will pay no tax – although this may well increase to 36 months shortly. This means that after the point of owning the property for a year you are exempt from paying capital gains tax. This is obviously very attractive for an investor as it means it does not restrict you financially from selling your investment in the short term. If you sell up within a year, the taxable income is calculated as the difference between the sale price and the purchase value, i.e. the profit they have made.

Latvia has a double taxation agreement with the UK and most other western countries and as such you will not be liable to pay tax in both countries. As always, with any individual tax questions we would recommend that you speak to your local financial adviser or accountant.

Income Tax - Income tax for individuals is 25% and this is based on a flat rate system.

With buy to let property, just as in the UK, you can deduct certain expenses that are associated with the property. These will include mortgage interest, maintenance of the property, monthly management fees and expenses that are associated with inspecting the property.

Corporate Tax - The standard rate of corporate tax in 2005 is 15% - this has been moving downwards from 25% in 2001 to attract further international business and is clearly working. Just imagine for a minute falling taxes in the UK – ok, it’s not going to happen!

Again very attractive taxes – if there is such a thing - compared to many countries.

Starting with a strong democracy, Latvia is now heading toward further integration with the West. The 100-seat unicameral Latvian parliament, the Saeima, is elected by direct, popular vote every four years. The president is elected by the parliament in a separate election also every four years. The president invites a prime minister who, together with his cabinet, forms the executive branch of the government, which has to receive a confidence vote by the Saeima. On September 20, 2003, in a nationwide referendum 66.9% of the population voted in favour of joining the European Union. Latvia as earlier stated then became a member of the European Union on May 1, 2004. Latvia is also a member of the World Trade Organization (1999) and NATO (2004) - so stable legal situation clearly leads to a stable and attractive Latvia real estate market.

When it comes to buying property, the legislation of Latvia provides foreign investors an opportunity to purchase or rent real estate property with virtually no limitations. All Latvia real estate is entered in the central land register - the Land Book, protecting ownership rights for the property and land.

Latvia is part of the EU regulatory structure – and it has a strong rating in the Doing Business Report.

Latvia is very accessible from most of Europe. The budget airline Ryanair flies into Riga from Liverpool and Stansted. Airline passenger traffic to Latvia tripled between 2002 and 2005, see the table further down, which was down to increased demand from all over Europe and increased flights from most major European cities - this accesability has a strong impact on the Latvia real estate market.

Prices in the capital while rising rapidly, are still far lower than many surrounding capital cities – this is highlighted in the Riga section further on.

In many of the other major towns and cities in Latvia, prices per square metre are as low as £200-400 per square metre, and clearly with strong affordability, these prices compare very well with surrounding countries, and certainly most other EU countries - which means for the international investor the Latvia real estate market is very attractive.

So again, once we have reviewed all the major macroeconomic factors in Latvia, we can see that in every category the Latvia real estate market appeals to an international investor – low borrowing rates (amongst the best in the world), very low buying costs, and a booming economy with local as well as international demand.

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Latvia Real Estate market - why it is a great place to invest!