Suburban houses sprouting ‘like mushrooms’

The Baltic Times
Gary Peach
July 11, 2007
NEW TRENDS: As purchasing power in the Baltics grows, buyers are going in for 21st century houses with plenty of space, two-car garages, saunas, and all the modern conveniences.

RIGA – Real estate agents from all three Baltic countries agree that more higher-income families have driven up demand for suburban houses as they opt for roomier living quarters with wide lawns and driveways long enough to park two cars. The era of crowded high-rises – read: anthills – is in the past, and that of the suburban commute has begun.
Kadri Lindpere, communications manager at Arco Vara, an Estonian real estate firm that recently went public, says that suburban housing development in Tallinn, has been “very active” in recent years.
“Areas with good infrastructure – roads, schools, kindergartens, shops, transportation, etc. – are the most in demand,” she says, adding that Estonians have a preference for saunas, garages and terraces pointed toward the south.

The most popular areas outside Tallinn are Nomme, the Pirita-Merivalja-Viimsi tri-borough area and Kristiine, Lindpere says.
In Riga, the suburban ring is about 30 kilometers around the downtown area. Babite, where houses are growing “like mushrooms after the rain,” is only 15 kilometers away from the center of town.
Unlike Tallinn or Vilnius, Riga offers the seaside. Jurmala and Vecaki are prime property magnets, where demand will always exceed supply. In Jurmala the price of a house now goes for $2 million, real estate agents say.

In its May survey of the Riga real estate market, Latio, a leading real estate firm, says that in general Riga residents are looking for houses in the 150 – 250 square meter range with four rooms and the full range of communication capabilities. The price range: a whopping 150,000 – 250,000 lats (214,000 – 350,000 euros).
Mindaugas Simkus, head of the brokerage department at In Real, a Lithuania-based real estate agency, says that the largest share of demand is for houses in the 120 – 220 square meter range in a good neighborhood with at least one garage. With rising energy prices, a house’s heating system is also important, he adds.
Generally Lithuanians tend to prefer partially finished houses since they can “implement their fantasies” with a variety of decor, finishings and furniture.

Prices for new housing, including new apartments, in Lithuania increased 10 – 15 percent in the first four months of the year to reach 500 – 900 litas (145 – 260 euros) per square meter, according to In Real. For houses, prices start from 4,500 litas (1,300 euros) per square meter.
Simkus says the typical purchaser of a house in Lithuania is someone who originally had considered buying a larger apartment but then, after weighing all the economics, sees the pluses of buying a house in the suburbs.
The biggest housing projects in Vilnius are being built around the Ukmerges highway, and in Pavilnys and Bajorai, Simkus says.
In Tallinn, the price per square meter for houses is somewhat lower than for new apartments in the same suburban area simply due to the sheer scale, explains Lindpere. For this reason smaller houses – considered to be approximately 150 square meters – are in high demand, she adds.
“New houses are mainly sold bare – with full internal finishing but no furniture, but as the supply on the market has grown, there are houses that are partially furnished,” says Lindpere.

Latvians like to buy their houses finished. As Girts Grinbergs, a board member at Ober-Haus, the largest real estate agency in the Baltics, points out, the labor deficit in the construction industry is such that finding workers to complete the job is extremely difficult. Latio agrees, noting in its survey that new house shoppers are looking for fully finished premises.
Latvia’s real estate market in general has entered a period of stagnation, albeit temporary, experts say. As part of the government’s anti-inflation plan, banks have had to implement stricter lending policies. Beginning July 12, Latvians have to provide lending institutions with a statement of income from the revenue service if they are seeking a large mortgage. The reality of coming clean, if only partially, with the taxman is likely to deter many consumers from procuring loans.

Also, for the last three months the market is rife with rumors about an imminent fall in prices, Grinbergs says. People simply don’t know what is going on; exuberance has abetted somewhat, and the market is waiting for clarity.
Data from the Bank of Latvia bears out this trend. In February new housing loans reached a peak of almost 280 million lats (400 million euros), but in March plummeted to approximately 130 million lats, according to a recent bank report.
In February year-on-year growth of mortgage loans to Latvians was 89 percent; by May, this rate had fallen to 77 percent, Bank of Latvia data shows.

No doubt this is a much-needed cooling off for the market. Housing loans in Latvia soared 86 percent in 2006 – a phenomenal rate by any measure – and even overtook Lithuania in nominal terms despite having 1 million less residents. (See table on this page.)
But the stagnation won’t last long. As Grinbergs explains, the average occupancy in Riga is 24 square meters per capita, while in Western Europe it is 40 square meters. So over the long term more Latvians will try to improve their lifestyle by moving into a roomier residence. This, says Grinbergs, will help provide the real estate market’s next boost.

Top three Latvian mortgage lenders (Jan – May, ’07)

Total* / Jan-May / % change increase

1. Hansabanka 1.1 bln/209 mln/+21.6
2. SEB LU 642 mln/123 mln/+23.8
3. DnB Nord 544 mln/185 mln/ +51.6

Total industry 4 bln/840 mln/+25.8

*in Latvian lats, at of end May
Source: Latvian Commercial Banks Association, BNS

Baltic housing loans 2006 – a snapshot

Total /Annual increase

EE 4.2 bln euros /+63.4%
LV 4.6 bln euros /+86.5%
LT 3.0 bln euros /+60.9%

All Baltics 11.9 bln euros /+71%

Source: Latvian Association of Commercial Banks, BNS