A shortage of new apartments is expected in the next two to three years

The data of the real estate consulting company “Colliers” show that in the first-time market in Riga and Pierīga, 1,725 ​​apartments of the middle and economic class are currently available for purchase, where it is possible to move in immediately, while another 2,950 apartments of the available segment are under construction or in the planning stage.

Eksha admits that the number of houses put into operation is quite large. There has not been such a wide offer of finished apartments on the market for several years, so this situation is beneficial for buyers, because it is finally possible to physically view, walk around and buy exactly the kind of housing you want. This is also confirmed by the sales statistics of “Bonava Latvija” – currently the majority of transactions take place directly with completed apartments.

“On the other hand, most of the available apartments are located in locations that buyers may or may not like, and the rest of the completed housing are basically small remnants of almost sold-out projects scattered all over Riga and Pieriga,” explains Ekša.

As Agija Vērdiņa, head of the Research and Consulting Department of “Colliers Baltic”, reveals, the average registered transaction for an apartment in a new building in 2023 was 152,000 euros, compared to 131,000 euros in 2022. On the other hand, in the segment of renovated projects, developers have switched to selling apartments without interior decoration, thus allowing lower sales prices to be maintained. As a result of these changes, the average transaction has remained unchanged – around 100,000 euros.

Vērdiņa informs that of all completed and unsold apartments in Riga, the most – 570 new apartments – are available in the center, while 440 apartments are available in one developer’s project in Jugla. However, judging by the relationship between demand and supply, the largest supply is in Dreiliņi, where two potential buyers apply for each new apartment, while the most intense demand is in micro-districts that are popular with many – Purvciem with 37 people per new apartment and Imanta with 24 potential residents in each new apartment. For comparison – in the center of Riga, the demand is 10 people for one new apartment.

“In general, it can be observed that there is less demand in those districts of Riga where intensive development of new projects is taking place, and accordingly the supply is higher. However, it must also be concluded that people still prefer those neighborhoods that are familiar to them, are close to the center and are easily accessible by public transport,” informs Vērdiņa.

In Eksha’s view, it is expected that in the next two to three years, the real estate market will be significantly affected by the decrease in the amount of plots purchased by housing developers, which has been experienced with the war in Ukraine and the increase in EURIBOR.

The process from the developer’s decision to start a new project and the purchase of a plot of land to the completion of ready-made apartments usually takes several years, and during this time a lot can happen, explains Ekša. Taking into account both the geopolitical and financial situation, transaction activity in the segment of ready-made apartments has decreased, forcing developers to be cautious and reconsider their future plans. According to Ekša, the decline in the volume of construction in the future will definitely be reflected in the supply of new housing and, most likely, in the prices of apartments as well.

Since in 2020 and 2021 there was a high demand for apartments in the first-time market, in 2023 there was a significant increase in the number of apartments added to the market. However, the number of sales transactions registered last year in the market of new apartments has decreased by 6% compared to 2022. On the other hand, the average transaction price registered last year showed a stable monthly increase, the price per square meter of registered transactions increased by an average of 14% compared to the previous year. Therefore, the total amount of sales in the market of new apartments last year reached 305 million euros, which is 5% more than in 2022.

Eksha concludes that in the second half of last year, developers greatly promoted the availability of new housing with various promotions and special offers. By purchasing an apartment, buyers could get free parking or kitchen equipment, and live for a year or two without paying for utilities. Such response can be explained by the rapidly rising loan interest rates. Not expecting quick and tangible support from commercial banks, developers did everything to compensate the impact of EURIBOR on new home buyers.

“Whether or not developers will be welcoming again this year depends on various factors, however, it is very likely that some special offers could be canceled in the near future. The slow pace of development of new projects means that the supply of new housing could start to shrink again soon, but prices, when demand exceeds supply, – to grow,” believes Ekša.

It has already been reported that “Bonava Latvija” worked with a turnover of 35.349 million euros in 2022, which is 7.1% less than in 2021, but the company’s profit decreased by 7.5% and was 4.998 million euros. The company’s financial data for 2023 have not yet been made public. “Bonava Latvija” implements the development, construction and sale of both economic and business segment housing in Riga.

“Bonava Latvija” parent company “Bonava” is one of the largest real estate developers in Northern Europe. The company works in Germany, Sweden, Finland, Denmark, Norway, St. Petersburg, Estonia, Lithuania and Latvia, reaching a turnover of 1.48 billion euros in 2022. “Bonava” shares are listed on the “Nasdaq” stock exchange in Stockholm.