Estonian developers expand into Latvia as Riga offers cheaper land

Estonian real estate developers are increasingly turning to Latvia, where land in Riga is considerably cheaper and planning and construction permit procedures take less time, ERR reports.

Although property prices in Latvia have risen by about 51 percent over the past five years, the average price level remains significantly lower than in Estonia. Construction costs are similar in the two countries.

Luminor bank’s head of partner relations, Elar Ollik, said Riga’s property market is attractive because new developments account for a smaller share of the overall market, creating greater potential than in Tallinn, where some consider the market oversupplied with new apartments.

Ollik said procedures in Riga are also faster and that growing borrowing capacity among Latvian residents is improving access to new developments.

Merko Ehitus CEO Ivo Volkov said the Latvian and Estonian property markets do not differ greatly because market forces are similar everywhere. However, consumer confidence in Latvia has been higher than in Estonia in recent years, which has supported the market.

Property prices in Riga nevertheless remain lower than in Tallinn, largely because Riga has more housing inherited from the Soviet era. While many Soviet-era apartment blocks in Tallinn have been renovated, the share of renovated buildings in Latvia remains low, Ollik said.

Estonian developers Invego and Reterra are jointly developing a new residential district in central Riga, with an investment of nearly 40 million euros. The first phase of Invego’s Nordale development is valued at 38 million euros.

Invego CEO Kristjan-Thor Vähi said the shorter bureaucratic procedures were an important reason developers were looking south. According to him, planning and building permit procedures in Latvia take roughly three times less time than in Estonia.

Reterra CEO Reigo Randmets said procedures in Latvia take months, while in Estonia they can take years. He said Reterra spent six years obtaining a building permit for the Hippodrome project in Estonia, but received the final permit for its Latvian project in seven months.

Randmets said Riga’s main attraction for developers was the lower initial cost of property. However, purchasing power in Latvia is lower, making sales more difficult.

He added that Estonia’s lengthy procedures ultimately affect buyers. If planning an apartment building takes five years, the delay can add about 1,000 euros to the price per square metre.