Riga online  
Riga online info   Add to Favorites
Riga Travel & Tourism City Guide
Riga Travel & Tourism City Guide
Welcome to Rigaonline.info
 
Real estate boom shatters East Europeans' dreams

realestate latvia riga By James M. Gomez Bloomberg News Published: August 10, 2006

PRAGUE Zane Apse, a Latvian born when her country was part of the Soviet Union, says her capitalist dream of home ownership has become a nightmare.

Apse, 25, and her boyfriend, who together bring home less than $1,000 a month, have searched in vain for two years to find a one-bedroom apartment in the capital, Riga. Buying in the city center, where the average unit sells for $100,000, is out of reach, she says, echoing laments from potential homebuyers throughout the European Union's new eastern members.

"I don't want to keep throwing my money away on rent, so what can I do?" said Apse, who sells advertising for a weekly newspaper, as she stared out a coffee shop window. "If you don't have rich parents, it's almost hopeless."

Real estate prices have risen as much as 100 percent in the eight former communist states that joined the EU in 2004, driven by buyers from Western Europe. Many local residents, with less than a quarter the buying power of their neighbors, have been locked out of the market, adding to frustration with EU membership and eroding support for budget cuts needed to adopt the euro.

East Europeans are angry about rules that prevent them from working in most of the 15 older EU nations, while their own governments are reducing spending on pensions, health care and other social programs to meet the standards that are demanded before they will be allowed to adopt the euro.

In Poland, the free-market Citizens' Platform lost elections last September to a coalition of parties critical of EU membership. The Czech Parliament is at a stalemate, with the Social Democrats and Communists fighting to raise pensions and state wages while the Civic Democrats are calling for tax cuts to spur economic growth.

The real estate boom is stoking opposition.

"It was created without their participation and doesn't reflect at all their wealth, which hasn't changed much since EU entry," said Mariusz Sochacki, an economist at the Polish Real Estate Market Researcher in Warsaw. "All they hear all the time is that they should sacrifice for future generations and keep spending discipline, while at the same time EU investors come, buy properties and lift costs to unreachable levels."

The price surge also has triggered investor concerns that the bubble will burst as interest rates rise, saddling banks with bad loans. The boom has been fueled by floating-rate mortgages as low as 4.4 percent, but now central banks are lifting rates across the region.

"This is not sustainable," said Alf Vanags, director of the Baltic International Center for Economic Policy Studies in Riga. "People have the mentality it will go on forever. They are wrong."

While EU membership has spurred economic growth by attracting investment from Western companies, wages in the region still are a fraction of those in Western Europe. In Latvia, the average gross monthly wage is $410, compared with more than $4,000 in Germany.

Latvian wages rose 17.9 percent last year, trailing the 50 percent surge in the country's residential property prices, according to Colliers International, the largest real-estate consulting company in Central and Eastern Europe. In central Riga, where sleek new shopping centers are crowding out 19th-century buildings, prices in some quarters have doubled.

And the transformation of the region's economy may fuel continued gains in property prices.

Mortgages - almost nonexistent in the region 10 years ago - are still a new product here. Banks in Eastern Europe now hold almost $50 billion worth of mortgages, about 6 percent of the region's gross domestic product. In the 15 older EU member countries, they are 40 percent of the GDP.

Prices will continue to rise as borrowing patterns begin to mirror Western ones, said Herbert Stepic, chief executive of Raiffeisen International Bank, a Vienna financial services company that has more than 2,500 outlets in Eastern Europe, including Russia.

"I see no signs of a bubble," Stepic said.

So far, British and Irish investors have led the surge of homebuyers into the new EU countries, searching for bargains and investments after house prices boomed in their own countries, said Mihails Morozovs, a managing partner at Colliers International.

"It has been quite wild," Morozovs said. "We are quite happy with the existing situation."

In London, Liam Bailey, head of residential research for the real estate agency Knight Frank, said: "These are people who are either buying the lifestyle, a home abroad that they can enjoy, or they are investing, speculating on how they can ride the wave. The whole market has matured and developed rapidly."

Eastern markets are cheap for many West Europeans. The price of apartments in Chelsea, a trendy neighborhood in London's West End, rose to an average of ?507,000, or $967,000, in the first four months of 2006, according to Knight Frank.

The story is similar in Denmark, where prices are rising at an annual rate of 16.1 percent, and Ireland, with average increases of 10.7 percent.

In Budapest, an average two-bedroom apartment is selling for 21.7 million forint, or $103,710, almost triple the cost seven years ago, according to the market researcher GKI Gazdasagkutato. In the city center, prices are expected to jump 15 percent this year, GKI said.

In the Czech Republic, a record 1.47 billion, or $1.89 billion, was invested in real estate last year, 17 percent more than in 2004, according to the Chicago-based agency Jones Lang LaSalle. The Prague region is attracting most of the buyers.

For example, Charles North, 59, from North Yorkshire, bought a two-bedroom apartment near Prague's city center in May 2005 and now rents it out on a short-term basis.

In Budapest, 5,000 foreigners bought properties last year, about the rate as the year before, said Daniel Valko, an analyst at the Budapest-based real-estate brokerage Otthon Centrum. "The Irish and the British were the first to arrive after EU accession," Valko said. "Now, more and more Spanish, Dutch and Italians are looking to buy properties in Budapest."

Last year, the number of Warsaw apartments bought by foreigners grew 11 percent, to 1,367.

The city's most expensive apartment building, called the Belvedere Residence, is sold out, though work is still under way. Unfinished penthouses were being sold this year for 21,000 zloty, or $6,903, a square meter.

RedNet Property Consulting, sold 1,500 apartments in Poland's biggest cities during the first four months of this year, up from 300 during all of 2005. Most of the apartments were bought by a British company seeking properties for investors, said Maciej Dymkowski, development director for RedNet, which is based in Warsaw.

"The sky is the limit," Dymkowski said. "The prices are astronomical for many Poles, but are still far below EU levels. In general, a luxurious apartment can still be purchased for the price of a modest studio in London."

That is little comfort to Apse, the Riga advertising saleswoman. She is now considering returning to her hometown in northern Latvia and accepting the long commute so she can buy her own place.

"If we have to, we will move to the village or something," she said. "But do I really want to travel two hours each way? I just can't see any other way out."

PRAGUE Zane Apse, a Latvian born when her country was part of the Soviet Union, says her capitalist dream of home ownership has become a nightmare.

Apse, 25, and her boyfriend, who together bring home less than $1,000 a month, have searched in vain for two years to find a one-bedroom apartment in the capital, Riga. Buying in the city center, where the average unit sells for $100,000, is out of reach, she says, echoing laments from potential homebuyers throughout the European Union's new eastern members.

"I don't want to keep throwing my money away on rent, so what can I do?" said Apse, who sells advertising for a weekly newspaper, as she stared out a coffee shop window. "If you don't have rich parents, it's almost hopeless."

Real estate prices have risen as much as 100 percent in the eight former communist states that joined the EU in 2004, driven by buyers from Western Europe. Many local residents, with less than a quarter the buying power of their neighbors, have been locked out of the market, adding to frustration with EU membership and eroding support for budget cuts needed to adopt the euro.

East Europeans are angry about rules that prevent them from working in most of the 15 older EU nations, while their own governments are reducing spending on pensions, health care and other social programs to meet the standards that are demanded before they will be allowed to adopt the euro.

In Poland, the free-market Citizens' Platform lost elections last September to a coalition of parties critical of EU membership. The Czech Parliament is at a stalemate, with the Social Democrats and Communists fighting to raise pensions and state wages while the Civic Democrats are calling for tax cuts to spur economic growth.

The real estate boom is stoking opposition.

"It was created without their participation and doesn't reflect at all their wealth, which hasn't changed much since EU entry," said Mariusz Sochacki, an economist at the Polish Real Estate Market Researcher in Warsaw. "All they hear all the time is that they should sacrifice for future generations and keep spending discipline, while at the same time EU investors come, buy properties and lift costs to unreachable levels."

The price surge also has triggered investor concerns that the bubble will burst as interest rates rise, saddling banks with bad loans. The boom has been fueled by floating-rate mortgages as low as 4.4 percent, but now central banks are lifting rates across the region.

"This is not sustainable," said Alf Vanags, director of the Baltic International Center for Economic Policy Studies in Riga. "People have the mentality it will go on forever. They are wrong."

While EU membership has spurred economic growth by attracting investment from Western companies, wages in the region still are a fraction of those in Western Europe. In Latvia, the average gross monthly wage is $410, compared with more than $4,000 in Germany.

Latvian wages rose 17.9 percent last year, trailing the 50 percent surge in the country's residential property prices, according to Colliers International, the largest real-estate consulting company in Central and Eastern Europe. In central Riga, where sleek new shopping centers are crowding out 19th-century buildings, prices in some quarters have doubled.

And the transformation of the region's economy may fuel continued gains in property prices.

Mortgages - almost nonexistent in the region 10 years ago - are still a new product here. Banks in Eastern Europe now hold almost $50 billion worth of mortgages, about 6 percent of the region's gross domestic product. In the 15 older EU member countries, they are 40 percent of the GDP.

Prices will continue to rise as borrowing patterns begin to mirror Western ones, said Herbert Stepic, chief executive of Raiffeisen International Bank, a Vienna financial services company that has more than 2,500 outlets in Eastern Europe, including Russia.

"I see no signs of a bubble," Stepic said.

So far, British and Irish investors have led the surge of homebuyers into the new EU countries, searching for bargains and investments after house prices boomed in their own countries, said Mihails Morozovs, a managing partner at Colliers International.

"It has been quite wild," Morozovs said. "We are quite happy with the existing situation."

In London, Liam Bailey, head of residential research for the real estate agency Knight Frank, said: "These are people who are either buying the lifestyle, a home abroad that they can enjoy, or they are investing, speculating on how they can ride the wave. The whole market has matured and developed rapidly."

Eastern markets are cheap for many West Europeans. The price of apartments in Chelsea, a trendy neighborhood in London's West End, rose to an average of ?507,000, or $967,000, in the first four months of 2006, according to Knight Frank.

The story is similar in Denmark, where prices are rising at an annual rate of 16.1 percent, and Ireland, with average increases of 10.7 percent.

In Budapest, an average two-bedroom apartment is selling for 21.7 million forint, or $103,710, almost triple the cost seven years ago, according to the market researcher GKI Gazdasagkutato. In the city center, prices are expected to jump 15 percent this year, GKI said.

In the Czech Republic, a record 1.47 billion, or $1.89 billion, was invested in real estate last year, 17 percent more than in 2004, according to the Chicago-based agency Jones Lang LaSalle. The Prague region is attracting most of the buyers.

For example, Charles North, 59, from North Yorkshire, bought a two-bedroom apartment near Prague's city center in May 2005 and now rents it out on a short-term basis.

In Budapest, 5,000 foreigners bought properties last year, about the rate as the year before, said Daniel Valko, an analyst at the Budapest-based real-estate brokerage Otthon Centrum. "The Irish and the British were the first to arrive after EU accession," Valko said. "Now, more and more Spanish, Dutch and Italians are looking to buy properties in Budapest."

Last year, the number of Warsaw apartments bought by foreigners grew 11 percent, to 1,367.

The city's most expensive apartment building, called the Belvedere Residence, is sold out, though work is still under way. Unfinished penthouses were being sold this year for 21,000 zloty, or $6,903, a square meter.

RedNet Property Consulting, sold 1,500 apartments in Poland's biggest cities during the first four months of this year, up from 300 during all of 2005. Most of the apartments were bought by a British company seeking properties for investors, said Maciej Dymkowski, development director for RedNet, which is based in Warsaw.

"The sky is the limit," Dymkowski said. "The prices are astronomical for many Poles, but are still far below EU levels. In general, a luxurious apartment can still be purchased for the price of a modest studio in London."

That is little comfort to Apse, the Riga advertising saleswoman. She is now considering returning to her hometown in northern Latvia and accepting the long commute so she can buy her own place.

"If we have to, we will move to the village or something," she said. "But do I really want to travel two hours each way? I just can't see any other way out."

Riga This Week
In Riga This Week
Local Shopping
Where to purchase the latest designer fashions, shoes, more

Movie Showtimes
Find reviews and schedules for all films currently in theaters

What's Hot This Week
Plan a big night out: Tickets, events, concert calendars, more

Nightlife Scene
Get the skinny on the city's hottest new bars and clubs

Hotels In Your City
Keep up with the inn crowd: Plan a weekend getaway


riga


| Jurmala online | Riga Yellow Pages   (C) 2006-2012 Rigaonline.info All rights reserved.