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The SA-Latvia link

14 Sep 2006

Property prices are currently rising faster in the former "Eastern Europe" bloc than anywhere worldwide. However, there's no general indication of an excessively inflated "bubble". Rather, the situation is in some ways analogous to conditions in South Africa between 2003 and last year.

After years of severe depression of real values, a massive catching-up exercise has been taking place. That's been particularly true of such countries as Latvia, Bulgaria and Romania, among others. In Riga, the Latvian capital, prices increased 45% on average in the year to June 2006, after surging more than 70% in the previous 12 months. But as in SA, that hasn't been good news for everyone.

The huge rise in the ratio of prices to incomes has made it impossible for many people in Latvia to enter the housing market at all, except perhaps by acquiring property a long way from their workplaces. Bloomberg news agency cites the example of Zane Apse, aged 25, who together with her boyfriend, earns the equivalent of US$1 000/month in Riga. That compares with the $100 000 needed for a convenient one-bedroom flat.

The critical problem is that the buying surge hasn't come simply from prospering Latvians. It's been greatly driven by thousands of much richer people from European Union nations, especially from Germany and Britain in this case, snapping up "bargain" holiday homes.

But the position is more difficult for Latvia and some other nations than for SA. That's because many only "moderately" well-off EU residents have much easier travel opportunities in terms of cost and time to the former Soviet nations than have Europeans coming to, say, SA's Western Cape. - Howard Preece

Article courtesy of Finweek.

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