Buying a home is no longer affordable for many

In the new housing market, where even a year ago the demand far exceeded the demand, the situation is that the need for housing theoretically remains, but the commissioned projects are more and more often not completely sold out – the increase in prices in this segment is proportional to the increase in the price of building materials, however, as the income of the residents does not increase just as fast and as the other costs also increase, the range of potential buyers decreases. In 2020, the majority of transactions on the market took place with apartments that had already been put into operation. As household savings increased during the pandemic, the demand for apartments in new buildings increased, as a result of which apartments on the market were quickly bought up and activity shifted to the construction stage. Agija Vērdiņa, Director of the Consulting Department of the real estate consulting company Colliers Latvia, reveals that there are currently less than 1,000 completed apartments available for purchase left on the market, however, it is expected that these indicators could improve in the near future, as the projects that are put into operation are increasingly often not fully completed sold out. “However, in general, large “residues” of new apartments on the market are not expected, because as a result of the increase in the cost of building materials caused by the war, fewer projects were started in 2022 than expected, and even now it can be observed that mostly new construction is started by well-known developers on the market,” adds A. Vērdiņa.

Other booking policies

Currently, there are approximately 3,770 apartments under construction, however, not all of these apartments are publicly available for booking, more than 700 of these apartments are either not yet available for purchase or are only available by contacting the developer individually. “Until the beginning of the war, rarely in any project were the apartments not sold during the construction stage or the prices were not published, but due to the uncertain and changing construction costs, several projects began to practice the above-mentioned price and reservation policy. About 30% of all apartments under construction are already reserved. A year ago, this indicator was around 50%,” said A. Vērdiņa. She explains that booking activity has decreased for several reasons: “First of all, prices have increased by about 25%. Secondly, due to the impact of Euribor, both the increased cost of borrowing and the reduced amount that a household can borrow, the lower number of available projects also has a certain impact on the decline in transactions. The increase in prices that we observe in the segment of new apartments is proportional to the increase in the price of building materials, however, as the income of residents does not grow as fast and other costs also increase, the range of potential buyers decreases”. This is also confirmed by the “Swedbank” Housing Affordability Index (MPI) – the purchase of a home in the first-time market is currently out of the pocket of many buyers. Although wage growth continued last year, apartment prices grew faster and, along with much higher interest rates, reduced housing affordability. According to the MPI, the general cost of living and the decline in purchasing power have also adversely affected the willingness and willingness of the population to make large purchases.

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