The year 2022 in the real estate industry has been like a boat ride on a rapid river – a rapid rise at the beginning of the year was replaced by a fall after the war started by Russia in Ukraine, but later there was a time of several unpredictable turns. This year, this “river” has become a little calmer, although the stage of rapids and sudden turns is far from over. Last year, the apartment market was characterized by a price increase in so-called new projects (at least 20%), a slight price drop in multi-apartment houses in micro-districts (in the autumn months) and a strong demand for energy-efficient solutions, both in the choice of materials and in the form of heating solutions.
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Several new projects are expected to enter the market this year, as well as persistent demand for high-quality, energy-efficient housing, which will prevent prices in the new project segment from falling.
New apartments will complement the offer
A year ago, at the beginning of 2022, the real estate industry was characterized by the “catch-up” of new apartments – quality apartments (including private houses and land in a promising location) disappeared from the advertisement portals within minutes, but the developers of the new projects had sold most of the properties in the newly constructed buildings. in the design or construction stage. Real Estate quickly gained the reputation of a valuable investment, as it became a good alternative to save savings in the face of ever-increasing inflation.
The beginning of the war changed the situation rapidly – construction costs, which significantly exceeded average inflation, caused apartment prices to rise by at least 15%-20% in the first quarter of 2022. The number of apartment purchase transactions in Riga microdistricts (new projects) decreased from 540 transactions in the first quarter of the year to 435 transactions in the third quarter (“Arco Real Estate” and VZD data). However, the price of apartments in new projects continued to rise – in Pierīga and Riga micro-districts in the autumn period it exceeded 2,200-2,400 euros per square meter, while in the center of Riga and in the most sought-after districts the price significantly exceeded 2,600 euros per square meter. On the other hand, in the old multi-apartment so-called serial houses, the price in the autumn months, it decreased a little – to less than one thousand euros per square meter, and the offer of such properties is significantly higher than at the end of 2021.
Construction costs, uncertainty about energy supply and price, as well as macroeconomic uncertainty forced some real estate developers to “freeze” their projects. However, despite this, a considerable addition will enter the market this year – at the beginning of 2022, there were around 2,800 apartments under construction, of which 50% were already reserved, the number of apartments available this year in the new projects is expected to be around 2,900 apartments, of which less than 2,000 apartments will have A energy efficiency in classroom buildings. About 30% of the apartments are reserved, but the reservation level is significantly different depending on the specific project – in some, reservations have already reached 80%, while in others it is negligible. Last year, it was observed that when starting the construction of a new project, developers were not always in a hurry to offer apartments for reservations. Despite a slight decrease in market activity in the second half of 2022, this year the developers plan to start the construction of some new projects and in total we expect an additional 400 new apartments.
The buyer becomes more prudent
Property buyers have become more cautious and demanding. Much more attention is paid to maintenance costs, the energy efficiency of the house and the managers’ plans to further reduce heating and hot water costs in the future. At the same time, buyers are more interested in the additional benefits they get with the apartment (storage rooms, parking, children’s playground, etc.), and therefore developers are starting to offer this as a “bonus”. Some caution related to the still unclear inflation dynamics in the future is indicated by “Broad“calculated home buyer confidence index: in December 2022, it took 70 days to sell a home at the market price (only 28 days last July), but only 5% of homes are sold within a month from the moment the advertisement is published.
The average loan amount for the purchase of an apartment in the new project in 2022 reached 107 thousand euros, which shows that a family whose income exceeds the average can afford the purchase of property in the new project. The total volume of real estate lending decreased slightly last year – “Kredītinformations Biroja” data show that approximately 7% less mortgage loans were issued in 2022. Borrowers are much more careful about what kind of property the family will need in order not to pay loan payments and maintenance fees for excess square meters. This caution is further reinforced European Central Banks an increase in credit rates, which makes borrowing more expensive across Europe.
The price difference “scissors” is increasing
In 2023, we will witness how new solutions in building construction can further increase their energy efficiency. This stems from both demand trends and construction requirements. Among such solutions should be mentioned efficient recuperation systems, underfloor heating systems instead of radiators, solar panels on the roofs of apartment buildings to cover communal electricity expenses, as well as ground heat pumps, which make building heating independent of fossil fuel price fluctuations. Of course, new solutions will have to be included in the price of apartments, but the additional investment will be compensated by lower maintenance fees, as well as higher property value in the long term. The opposite process will be observed with regard to outdated, inefficient properties built 50-70 years ago – without investing in the energy efficiency of these buildings, their price will continue to decrease, but demand will be very low.
