Latvia: Overview

RENTAL YIELDS

Last Updated: Jul 18, 2008

Low to average gross rental yields

Gross rental yields for Riga City Centre apartments are low to average ranging from 4.19% to 6.48%. Prices start from €171,520 on 40 sq.m apartments to €1,205,380 for 220 sq.m apartments.

Apartments outside the city centre range from €102,945 to €410,040. Rental yields average slightly better for suburb apartments at 5.09% versus a 4.91% average for city apartments.

The residential market of Riga is characterized by a strong demand and rises in price with a slight drop in the last months. It is also one of the sectors with the most dynamic economical development. Comparing it to such developed cities as Helsinki and Berlin, there is not enough housing at disposal of Riga and this is a potentially positive indicator for residential market of the city.

According to the 2008 Baltic States Real Estate Market Report, there remains high demand for cheaper one and two room apartments in suburbs as well as a rising demand for apartments in newly built projects in suburbs as well.

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TAXES AND COSTS

Last Updated: Dec 06, 2007

Rental income tax is high in Latvia

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000
Tax Rate	nil	nil
Click here to see a worked example
Source: Disclaimer

Rental Income: Non-residents pay 25% income tax on their net rental income.

Capital Gains: Capital gains are taxed as ordinary income, at 25%.

Inheritance: There is no inheritance tax.

Residents: Residents are taxed on their worldwide income.

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BUYING GUIDE

Last Updated: Mar 30, 2007

Roundtrip costs are low in Latvia, except for newly-built units

Roundtrip buying costs range from 4% to 7.5%. However, this can be as high as 26% because of the 18% VAT on newly-built properties. The real estate agent’s commission is negotiable from 2% to 5%.

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LANDLORD AND TENANT

Last Updated: Nov 10, 2006

Latvia is pro-landlord

Latvia’s rental market is generally pro-landlord.

Rents: Rents can be freely agreed between landlord and tenant. Rent control exists only on denationalized buildings.

Tenant Security: Contracts for any period of time are possible, and terminate on the expiry of the term, without need for notice. If the tenant withdraws from the lease, he can in theory be made to pay the entire amount of the lease or rental payment.

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ECONOMIC GROWTH

Last Updated: Jun 18, 2008

A hard landing for Latvia’s economy

Latvia, together with the other Baltic States, has successfully shifted from a centrally planned to a market–oriented economy. Located in northeastern Europe, Latvia has a population of 2.3 million. It was admitted into full-membership in EU in 2004.

The consensus view is that the Latvian economy is in for a ‘hard landing’ after the rapid growth of the past few years. After a successful transition to a market based economy, the average annual GDP growth from 1996 to 2000 was 5.7%, rising to 8.2% from 2001 to 2005. In 2006, the economy expanded by 11.9% followed by a 10.2% increase in 2007.

Real GDP per capita has more than doubled since independence, to around US$11,985 in 2007. Unemployment has fallen to 6% in 2007 from 12% in 2002.

With rapid economic growth and loose monetary policy consumer prices rose rapidly. Annual inflation rose from an average of 2.5% from 1999 to 2003 to 6.5% from 2004 to 2006.

In March 2007, inflation was sharply up at 8.5%, up from 6.5% in March 2006. It was clear then that the economy was overheating. Access to credit was limited, taxes were raised. The government sharply reduced spending.

While the government appears to succeed in slowing down the economy (GDP growth is expected to be just 3.6% in 2008), inflation is proving to be more difficult to manage since fuel, commodities and food prices are also rising internationally. Inflation for 2007 was 10.10%, the highest in a decade. After reaching 16.8% in March 2008, full year inflation is expected to be around 15% in 2008.