In the first nine months of this year, SEB banka granted 134 million euros in housing loans, which is 49% more than a year ago, while the number of transactions increased by 30%. The largest increase in terms of both the number of transactions and the volume of financing this year was in the private house segment, which can be explained both by the insufficient supply in the apartment segment and the desire of the population to significantly improve living conditions.
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Funding in the private house segment has doubled; the average loan amount is around 100,000 euros
Given the very high demand and insufficient supply in the real estate market, as well as rapidly rising construction costs, we are currently seeing an increase in the real estate market value in all segments. The rise in prices is currently faster than the comparable transactions registered in the Land Register, so we are more and more often faced with a situation where the price exceeds the one set by the appraiser.
This means that customers may have less funding available than they expect and have to reckon with more participation. In this case, one of the solutions is definitely Altum support, which helps to reduce the size of the shareholding. Currently, more than half of the loans disbursed at SEB banka are supported by Altum, either for families or for young professionals.
According to SEB banka, the demand for financing in the private house segment has increased the most this year compared to the previous year. If in 2020 about a quarter of the total allocated funding was spent on the purchase or construction of houses, then this year it is already a third. The amount of financing in this segment has almost doubled, but the number of transactions has increased by 64%. The average loan amount this year is 13% higher than a year ago and amounts to about 100 thousand euros.
The greatest demand remains in Pieriga, where half of the allocated funding remains. The most demanded are Garkalne, Ādaži, Ķekava, Salaspils and Babīte parishes. About a third of the funding is directed to the purchase or construction of houses in the capital, but the rest – elsewhere in Latvia.
Apartment prices in new projects average around 2,000 euros per square meter and continue to grow
Recent trends show that customer demand for apartments in new projects has grown significantly in both the primary and secondary markets, which can be explained by customers’ desire for better and more sustainable housing. This promotes a favorable investment environment for real estate developers by increasing the availability of apartments.
As the demand grows, we observe a tendency that buyers in this situation pay the reservation fee even before the object is put into operation. For some developers, these fees can amount to up to 30% of the total transaction, although the transfer of the object is planned only after a year and a half.
Along with growing demand, prices are also rising in all segments. For example, in new projects in economy class prices have reached 2,000 euros per square meter and continue to grow. For comparison – a year ago, prices per square meter averaged about 1,600 euros. On the other hand, when building a house, the growing costs of construction materials and labor must be taken into account. Currently, construction costs average from 1,400 euros per square meter. In addition, it is important to keep in mind that costs may increase during the construction process, so they should be considered with caution and with a possible margin for appreciation.
Along with the costs of building private houses, customers face both a shortage of materials, which requires longer deadlines for the delivery and receipt of materials, and a shortage of manpower. Therefore, when building a house, one must also take into account the longer construction cycle of the house and the longer term before commissioning, which has increased from 18 months to 36 months in recent years.
However, evaluating the real estate market in the Baltics as a whole, it can be concluded that in Latvia prices per square meter are currently the lowest in all segments.
The real estate market does not overheat – borrowers are more prudent, banks make sure that liabilities are met
Despite the activity in the real estate market, there is currently no reason to talk about market overheating. Unlike in the pre-2008 crisis, public attitudes towards credit are now much more cautious.
Also, a number of regulations of the legislator and the regulator are currently in force, which determine the principles of responsible lending, preventing the assumption of excessive obligations. For example, there is a credit register and also a register of payments for services received, where information on borrowers’ liabilities is collected. Banks also adhere to strict conditions when granting funding, both for the total amount, which cannot exceed six years’ total income, and for monthly payments, which may not exceed 40% of monthly income.
It is also important to note that real estate, which is currently purchased and serves as collateral, has good liquidity – it means that it will be possible to sell it if necessary.
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