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Latvia Boom: "On Top of the World" Telegraph 18 August 2006 From his balcony, this apartment owner surveys the world's hottest property market. Where is it? Latvia, believe it or not. Graham Norwood reports on how British buyers are fuelling a global price explosion.
Megan Malone doesn't need to be told that flats in Latvia are rising in value faster than anywhere else in the world - because she owns one. The freelance educationalist, who lives near Brecon in mid-Wales, bought her 1920s two-bedroom apartment in the Latvian capital of Riga for just £35,000 in 2003. Now it has more than doubled in value.
Sunny outlook: the Old Town of Riga, the capital of Latvia, offers the best return in the world of investors according to the Global House Price Index compiled by Knight Frank
"Actually, I missed the boat. Two years earlier and that amount would have bought a five-bedroom mansion," says Megan, whose flat in a managed block in the old part of Riga was extensively improved by the former owner. "But when I knew Latvia was going to join the EU, it seemed the right time to buy."
Few could doubt Megan's shrewd purchasing skills at choosing a location that, at the time she bought, had scarcely been heard of by most in the UK. But she is not alone, as Britons increasingly become a nation of risk-taking property hunters.
Today, literally millions of us own foreign homes while hundreds of thousands buy in highly unusual locations, driven by the desire to own a place in the sun and grab the maximum capital uplift when - with luck - it becomes a global hotspot.
"Jet-to-let is the new buy-to-let," says Liam Bailey, research guru at estate agent Knight Frank. "People want a holiday home but they regard it as an investment too. Find yourself a place overseas before it has a step change and hugely appreciates, and you've got a bargain."
Bailey is the author of Knight Frank's new Global House Price Index, which is due to be published tomorrow. The Sunday Telegraph has had an exclusive preview of the figures, and the good news for Megan Malone is that Bailey's research - which looks at parts of countries where Britons are likely to buy property - has Latvia at the top of a 30-nation league table for capital appreciation.
"Apartments in Riga have risen more than 45 per cent in a year," Bailey notes. "It's a levelling up that's affecting all markets in the former Eastern Bloc. Wage inflation, growing prosperity and easier access to mortgages have all contributed to rapidly rising prices."
Arc Property, a Putney-based estate agency specialising in Riga and other east European locations, says British interest has mushroomed in the past 12 months. "Most people want to buy off-plan because prices are cheap and they get a lot for their money," Rebecca van Lierde-Molinoff of Arc observes. "A few want period properties. They're all banking on rental income."
Although much of Latvia is forest-covered, the main tourist attraction is the pretty walled Old Town in the capital, Riga. It might seem the obvious place to buy, but Megan Malone recommends buying nearby. "Old Town flats are very small," she says, "so don't be fooled by the beauty of the area. You get a lot more for your money in surrounding areas."
Intriguingly, 75 per cent of Arc's buyers don't even visit Latvia. They just buy there as an investment. The properties are used either as holiday homes, which are rented to tourists, or for long-term lets to locals. Other east European high fliers in Knight Frank's league table include Bulgaria and Estonia, up 20.5 per cent and 12.9 per cent in the past year, while far-flung places like South Africa, Canada and New Zealand also do well with increases of 14.3 per cent, 11.8 per cent and 10.6 per cent respectively. Bailey himself tips Germany as the likely best performer next year from his current league table of 30. "Germany is Europe's largest economy and the world's largest exporter but its property market is still under-performing. We expect sustained growth from 2007." Meanwhile he is working on including more east European countries in his analysis. "Accurate data is difficult in this region," he says, "but we should shortly be getting robust figures for some new countries."
These include Slovenia and Slovakia ("Probably the two countries with the best potential for large-scale growth in eastern Europe") plus Russia - or, at least, Moscow. "It has huge potential for growth and will rival London as the world's most expensive city in five years," Bailey claims. "But few can afford even today's prices, which are already extremely high."
All of this is music to the ears of Britons traversing the globe in search of bargains. There are no official figures held on foreign property ownership but there are some fascinating indicators. In Spain alone, Britons own 69,284 second homes, according to the Office of National Statistics (although as that figure includes only those declared to the Inland Revenue, there may be many more).
The Department of Pensions says 871,000 Britons are retired and draw a state pension while living permanently overseas - and there are as many people again who have retired abroad who are either below pensionable age or choose not to take a pension at all.
"No one knows the definitive figure but it's big and getting bigger," claims James Hickman of Caxton FX, a currency firm specialising in overseas home purchases. "Homes in old favourites like Spain are expensive now and, because there are so many of them, they're difficult to sell. Cannier buyers wanting good returns are looking for places that are undervalued and may soar in the near future."
And Hickman's top tip? It's another vote for Germany. "It hasn't risen much in value for over a decade and that must change soon," he says. "I've had one British client who's snapped up a terrace of 16 flats on the edge of Berlin for a total of €370,000 (£250,000), with each property pre-let and giving an annual yield of 14 per cent. Now that's a good buy."
But Germany's problem may well be that it's just too close, too easy to get to, for us increasingly-adventurous property colonialists. Distance and time are not necessarily obstacles when it comes to a Briton bagging a bargain in the sun, it seems. "There are Caribbean and South American countries that are good investments, especially for holiday homes," Liam Bailey says. "The markets are not always as transparent as in Europe and North America, but prospects in areas with high levels of tourism are generally good."
A 12-hour flight from London to the Venezuelan tourist haven of Isla Margarita hasn't deterred Carmel Daly-Fletcher, who runs The Skyrack pub next to Headingley cricket ground in Leeds. She and her husband, Paul, have remortgaged their home to buy three villas on Margarita, the cheapest of which is £61,000.
"You can't get a two-up, two-down for that in this country, or in Ireland or Spain," she explains. "There's no value left to realise in those property markets so you have to look far away at emerging nations."
Carmel isn't put off by the threat, however distant, of the properties being confiscated by nationalisation-mad Venezuelan president Hugo Chavez. Instead, Carmel sees the long-term likelihood of a financial killing. "There are direct flights now from Gatwick and Manchester, and Margarita's a popular holiday destination for Norwegians, Germans, the Danish and wealthy Venezuelans," she enthuses. "We're getting a six per cent guaranteed rental income and a month's holiday there each year too - we've got a winner." So if a tiny island off South America is an attractive investment for Britons (and be honest, could you find Isla Margarita on a map?), is anywhere out of bounds? This summer has seen the first holiday homes on Mauritius and buy-to-lets in Las Vegas go to Britons; this autumn there will be new schemes launched at Buenos Aires in Argentina and Gdansk in Poland, again with sales drives in this country.You have to go literally to the ends of the earth before you find a continent that remains a flight too far for the Brits: Australasia. Two New Zealand developments for sale over here - one at Wanaka and the other at Tui Creek, both on South Island - have so far struggled to find British buyers for properties priced at £400,000 and over. And two UK exhibitions of Australian investment properties had disappointing audiences, estate agents say.
"Australia and New Zealand are currently just for those permanently relocating," says James Hickman of Caxton FX. "Many people seem willing to buy in the most unusual of places. But unless you're moving permanently, the other side of the world is a step too far for investment or holiday homes - well, for the moment at least."
'We have winter sun and a solid investment.' Retired businessman Stephen Parker-Swift isn't content just to buy a home overseas - he's building his own to get a dream property in what he reckons is a dream location. By mid-September he and his retired wife Diana will have completed their five-bedroom villa next to a golf course at Franschoek, about 40 minutes east of Cape Town and in the centre of South Africa's glorious wine country.
"We live in Salcombe in Devon, so the need to go away in the summer is limited. Why would we when it's lovely at home? But we wanted a location which would be sunny over the British winter and would be a solid investment," says Parker-Swift, who bought the plot four years ago but held off building to see the scale of development nearby as the golf course was built.
The couple, who plan to use their new home for no more than three months a year, looked at different countries but plumped for South Africa. Despite its being almost 6,000 miles from Britain, they say the country is "only a bad night's sleep away" and, with little time difference, there is no problem with jet lag. They are also undeterred by South Africa's reputation for crime. "About 80 per cent of the local residents are permanent and the development has good security," Stephen says. "Of course there are problems - but that applies to everywhere in the world."
Knight Frank's prediction that Moscow will soon rival London as one of the world's most expensive cities comes as no surprise to Fraser Lawton, a British estate agent who recently bought a £600,000 apartment in the centre of the Russian capital. He says prices are already reaching over £4,500 a square metre - that's roughly the same as in fringe central London areas like Clerkenwell or Battersea. "What's really interesting is that the market here in Moscow is maturing and there are up-and-coming areas - the equivalent of St John's Wood, Chelsea and Knightsbridge," he says.
British investors are growing in number but Lawton, who now works for the Intermark estate agency in Moscow, says the city is already more expensive than most others in the world. A large four-bedroom apartment could easily cost £750,000 in a smart suburb.
But the possible returns are also high, he says. "Rental yields can be as high as 10-11 per cent a year - they used to be higher still."
Not that it's problem-free. "One difficulty for British buyers is that there are no real mortgages on offer in Russia," he says. This means purchasers will have to arrange UK funding - which is a problem, as British lenders don't yet regard Moscow as a safe investment.
Ryanair close to opening hub in Riga Baltic Times June 7th 2006 Ireland’s low-cost airline Ryanair may soon set up a base in Riga as part of its plans to expand operations in Eastern Europe, Latvian authorities said last week. A Transport Ministry official told the Baltic News Service that Transport Minister Krisjanis Peters and officials from Ryanair discussed setting up such a hub at a meeting on May 29. Lauris Dripe said the hub would include hangers with facilities for servicing airplanes, additional personnel and other infrastructure. Usually airlines with such hubs also set up accommodation hotels at nearby airports. Ryanair representative David O’Brien said that Ryanair’s current operations in Riga, which began in October 2004, have been very successful both for the airline’s business and Latvia, as the number of tourists has increased and Latvians are able to travel at low cost. David O’Brien confirmed that the company had ambitious plans for Riga. New routes might be launched from Riga this year and some more routes will be launched next spring, added Dripe. O’Brien said that the company plans to carry at least 1 million passengers next year, and double the number in the coming years. Thus, the company is in need of a base at Riga Airport. Peters has reportedly informed Ryanair about the airport’s development and expansion projects as well as other activities in Latvia, such as the boom in hotel construction. In 2005, Ryanair carried 427,246 passengers, 22.7 percent of the total number served at Riga International Airport. In the first four months of 2006, Ryanair carried 212,014 passengers, or 31 percent of the total.
Onwards and upwards: The real estate market in Latvia continues to boom Baltic Guide May 1st 2006 With the country posting GDP growth of over 10 per cent in the final quarter of 2005, and a projected figure in excess of 7 per cent for 2006, the rampant economy is driving up all property sectors. According to Ober Haus real estate agency, the prices of newly constructed apartments in Riga grew by 70-90 per cent on average last year. Nationally, this figure for new projects averaged out at above 30 per cent in 2005. Typically, new apartments located in Riga’s city centre will set you back anything from 1,500-4,500 euros per square metre. The premier destination, in price terms at least, continues to be Riga’s UNESCO-protected old town, where many of the current new projects are priced above the 5,000 euros/sqm mark.
Latvia beats Beijing in the buy-to-let race Sunday Times January 15th 2006 A Sunday Times report rates Latvia ahead of Beijing in the buy-to-let market. While prices in Beijing are booming many investors are wary about purchasing property over 5,000 miles from home and further research reveals that there are a number of complications, including a number of property taxes and bizarrely the need to take on a Chinese name. More worryingly property law is intricated and problems have been reported withdrawing funds from Chinese banks In contrast the report highlighted Latvia’s membership of the EU and competitive mortgage rates as key reasons as to why it finished above the Chinese capital in a league table of overseas investment hotspots (see below) According to the article, house prices in Latvia are set to increase by 10-15% per annum over the next 10 years and average rental yields are 6%. This supports Arc Property’s assessment of the market. Charles Rodger, Arc Property’s Latvia specialist also comments that; “Prices for newly built apartments in Latvia are a fraction of those in Western Europe, but with trade liberalisation, continued economic growth and a burgeoning middle class there could be parity in property prices in Europe within ten years. Hence properties in Latvia constitute an excellent low-risk investment for both short and long term rewards.” The article also cautions against guaranteed rents, which are becoming an increasingly common feature of overseas deals, especially in emerging markets where it takes more courage to invest. Developers argue that the guarantees provide a safety net. But property commentators warn investors not to be taken in by what may be simply a clever marketing tool. While the promised rents look attractive, they may bear no relation to what you will be able to charge when the guaranteed period ends. Stephen Ludlow, director of estate agent Ludlow Thompson, points to a scheme in Turkey offering a 40% return for two years. “If there is no rental demand, investors could see their yield fall off a cliff once the guarantee runs out”. Mike Boles at Savills Private Finance, an adviser also warns that “the guarantee is only as good as the organisation offering it”.
Latvia receives massive European Union funding January 13th 2006 Prime Minister Aigars Kalvitis welcomed the news that European Union leaders have succeeded in making an agreement on EU budget for years 2007-2013. Kalvitis stated that the extra funding now available for Latvia is likely to have a significant positive influence on Latvia’s economic development in further years. Arno Pjatkin, the Prime Minister’s councilor in public relations, revealed that the agreement on the EU long term budget provides 5.7 billion euro funding for Latvia in the period between years 2007-2013. “That means that every day Latvia will receive two million lats [approx. 2 million pounds]” indicates Kalvitis, stressing that Latvia will be able to invest this money in local infrastructure, the educational system, supporting local businesses and other local developments.
Baltic states 4th in Europe for property investment A Place In The Sun January 5th 2006 Channel 4’s flagship property show A Place In The Sun (Broadcast 5/1/2006) has named the Baltic States as among the best European countries to invest in property.
Latvia, Estonia and Lithuania come fourth while Slovakia finished seventh in the poll run by accountants PriceWaterHouse Coopers. The UK theoretically would have finished seventeenth.
The report emphasised the Baltic States’ high rental yields, growing middle class and relatively small capital outlay as key reasons why they finished so high up the list. Experts believe that their prosperous economy and continued trade liberalisation within the EU mean that Baltic property is both an excellent long-term as well as short-term investment.
The poll was based on the country’s GDP, rental yields and property prices, but Arc Property’s Latvia specialist, Charles Rodger, believes that Latvia and Estonia could have finished higher. Rodger is quoted in the January edition of the magazine that accompanies the TV programme;
“Whilst it is good to see the Baltic States finishing fourth; it is very unfair to lump together Lithuania, Latvia as Estonia as a single entity. Also the economic and property growth is centralised in the main urban centres which is not reflected by looking at the country as a whole. Neither did the poll emphasise the risks involved with other countries such as Romania (which finished first) where laws regarding land-ownership are very uncertain”.
“Estonia and Latvia combine both the potential reward of increasing property prices with the security of transparent property laws.”
Ryanair announces new daily route from Dublin to Riga Noticias December 1st 2005 "We are delighted to start our first route between Ireland and Eastern Europe with a daily flight to Riga commencing in January 2006. In the first year of operations, 80,000 passengers will enjoy our low fares between Dublin and the Latvian capital for a fraction of the high prices being charged by Aer Lingus and Air Baltic.
Riga airport doubles passengers in January y-o-y Riga international airport served 101,203 passengers in January, 2005, which is two times more than in the same period of the last year, spokesman of the airport Andorijs Darzins told BNS. Latvian Transport Minister Ainars Slesers speaking to the press praised the airports results and reminded that before the airport duties were reduced, a move which attracted several new airlines, "there were plenty of scepsis and reproaches". However, it is clear now that the last year's growth of passenger numbers is continuing, Slesers said. The airport served 1,060,426 passengers in 2004, a 49 percent increase from 2003. The growing passenger numbers can be explained by opening of new lines and raising the number of flights on the existing routes. Several new airlines have also started flying to Riga.
Ministry of Economics predicts 6-8% GDP growth in Latvia for coming years Baltic News Service The Economics Ministry predicts the gross domestic product (GDP) will grow at the average rate of 6-8 percent annually in Latvia over the coming years as the economy will continue developing, said Olegs Baranovs, the ministry's economy and structural policy department director. The ministry predicts that smooth development over the coming years will be ensured by favorable macro-economic situation, improvement of business environment, growing investment, production modernization and transfer to new and more productive technologies. The portion of job seekers this year could account for 9.5 percent of the economically active people ages 15-64 while for the last year the figure could be 10 percent. In 2005, like last year, the inflow of foreign direct investment could be at 4.5 percent of GDP.
Latvia sees biggest GDP growth among EU states in third quarter of 2004 Latvia's GDP growth was the highest among the European Union member states in the third quarter of 2004, Eurostat statistics agency data show. In the third quarter of the last year Latvia's GDP grew 9.1 percent compared to the same period of 2003. Thus, like in the first two quarters of 2004, Latvia kept the highest pace of GDP growth among the EU states. In the third quarter of 2004 Latvia was followed most closely by Ireland, whose GDP grew 6.3 percent year-on-year, Lithuania with 6.1 percent and Estonia with 5.9 percent of GDP growth. The smallest growth in the third quarter of the last year was for Portugal -- its GDP edged up only by 0.8 year-on-year, while Germany and Italy saw 1.3 percent of GDP growth. The average GDP growth in the third quarter of 2004 in the EU was 2.1 percent, and in the single currency states - 1.8 percent.
FDI inflow in Latvia nearly doubles in Jan-Nov 2004 Latvia received 329.5 million LATS (EUR 468.8 mln) in foreign direct investment (FDI) during the first 11 months of 2004, up 94.9 percent or 160.4 million on the same period in 2003, according to Latvia's balance of payment. The Bank of Latvia reports that of the investment made in Latvia in the 11 months 12.4 million lats was reinvested profits, which is 2.1 times or 64.2 million lats more than during the respective period in 2003. Data of Latvia's balance of payment show that in November alone the inflow of FDI was 17.4 million lats which is 4.3 million lats more than in November 2003 when the respective figure was 13.1 million lats. November was marked by the lowest activity of foreign investors throughout the last year whereas the highest activity was in April, the last month ahead of accession of Latvia to the European Union, when FDI inflow hit 62.3 million lats, emerging as the highest FDI inflow per month lately. Latvia's direct investment abroad meanwhile grew 2.8 times or by 32.9 million lats in the 11 months of 2004 on the same period in 2003, hitting 51.7 million lats. In 2003 Latvia received 205.553 million lats in FDI, down 16.4 percent or 40.2 million lats from 2002. Latvia's direct foreign investment abroad meanwhile in 2003 grew 3.4 times or by 12.8 million lats on 2002, reaching 18.136 million lats.
Latvia overwhelmingly votes Yes to EU entry The former Soviet republic of Latvia has voted overwhelmingly in favour of joining the European Union (EU). Final results from a referendum on Saturday showed that 67% voted Yes and 32.3% said No. The landmark decision is the final vote that will pave the way for the European bloc to expand its membership from 15 to 25 countries. Malta, Slovenia, Hungary, Lithuania, Slovakia, Poland, the Czech Republic and Estonia have already voted in favour of EU entry. Cyprus will also join, but is not holding a referendum. Prime Minister Einars Repse hailed the decision as one of the three most important decisions in the state's history, ranking it alongside gaining independence between World War I and II and regaining it with the collapse of the Soviet Union in the early 1990s. The electoral commission said turnout was 72.53% - higher than at the last parliamentary elections in October 2002. New order? Latvia's President Vaira Vike-Freiberga in the capital Riga said the vote would wipe out forever the divisions on the map of Europe. For Latvia, it is putting the final full-stop to the sequels of the Second World War and wiping out forever the divisions on the map of Europe that the odious Molotov-Ribbentrop Pact of 1939 had placed there Analysis: EU moves East There are about one million mother tongue Russian speakers among Latvia's 2.4 million residents. The No campaign had attempted to appeal to Latvians' nationalism, urging them not to cede to Brussels any of the sovereignty they have only recently won back from Moscow. Euro-sceptics warned Latvia's 2.5 million people will suffer economically, as the country is the poorest of the candidate nations to vote on the EU accession. Break with past Ms Vike-Freiberga, a firm supporter of accession, had predicted that, despite the country's reputation for Euro-scepticism, more than 60% of Latvians would follow her lead and vote Yes to Europe. She said voting for Europe would help Latvia cement its transition to a democratic, market economy and mark a decisive break with the past. "It means the end of years of hard work on our part to fulfil the criteria for the EU membership," the president said. "But it means more than that symbolically”. "For Latvia, it is putting the final full-stop to the sequels of the Second World War and wiping out forever the divisions on the map of Europe that the odious Molotov-Ribbentrop Pact of 1939 had placed there."
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