Latvian Real Estate
Encyclopedia
Since the year 2000 Latvia has had one of the highest (GDP) growth rates in Europe
. In 2006, annual GDP growth was 11.9% and inflation
was 6.2%. Unemployment
was 8.5% — almost unchanged compared to the previous two years. However, it has recently dropped to 6.1%, partly due to active economic migration
, mostly to Ireland
and the United Kingdom
. Some believe that Latvia's flat tax
is responsible for its high growth rate, but this is not universally accepted. Privatisation
has been mostly completed, except for some of the large state-owned
utilities. Latvia is a member of the World Trade Organization
(1999) and the European Union
(2004).
The fast growing economy is regarded as a possible economic bubble
, because it is driven mostly by growth of domestic consumption
, financed by a serious increase of private debt
, as well as negative foreign trade balance
. The prices of real estate
, which increases at amount approximately 5% a month (due to lack of tax legislation that could prevent speculations in real estate market), are perceived to be too high for the economy, which mainly produces low valued goods and raw materials. As stated by Ober-Haus, a real estate company operating in Poland and the Baltics, the prices of some segments of real estate market have been stabilised as of summer 2006 and some experts expect serious reduction of real estate prices in the near future.
The government introduced special program to reduce inflation and remain high growth rates recently. The main points of the plan are:
Latvia plans to introduce the Euro
as the country's currency but, due to the inflation being above EMU
's guidelines, this is unlikely to happen before 2010.
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
. In 2006, annual GDP growth was 11.9% and inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
was 6.2%. Unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
was 8.5% — almost unchanged compared to the previous two years. However, it has recently dropped to 6.1%, partly due to active economic migration
Human migration
Human migration is physical movement by humans from one area to another, sometimes over long distances or in large groups. Historically this movement was nomadic, often causing significant conflict with the indigenous population and their displacement or cultural assimilation. Only a few nomadic...
, mostly to Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
and the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
. Some believe that Latvia's flat tax
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...
is responsible for its high growth rate, but this is not universally accepted. Privatisation
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
has been mostly completed, except for some of the large state-owned
State ownership
State ownership, also called public ownership, government ownership or state property, are property interests that are vested in the state, rather than an individual or communities....
utilities. Latvia is a member of the World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(1999) and the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
(2004).
The fast growing economy is regarded as a possible economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
, because it is driven mostly by growth of domestic consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
, financed by a serious increase of private debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
, as well as negative foreign trade balance
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
. The prices of real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, which increases at amount approximately 5% a month (due to lack of tax legislation that could prevent speculations in real estate market), are perceived to be too high for the economy, which mainly produces low valued goods and raw materials. As stated by Ober-Haus, a real estate company operating in Poland and the Baltics, the prices of some segments of real estate market have been stabilised as of summer 2006 and some experts expect serious reduction of real estate prices in the near future.
The government introduced special program to reduce inflation and remain high growth rates recently. The main points of the plan are:
- To create a non-deficit country budget for the current 2007 year and a budget with a surplus for 2008 and beyond;
- to tax any transaction concerning real estate that has been in a person's possession less than three years;
- to increase control of credit;
- to increase energy effectiveness in homes and business to guard against possible rises in energy costs, and
- to increase work productivity and stimulate competition in business.
Latvia plans to introduce the Euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
as the country's currency but, due to the inflation being above EMU
Economic and Monetary Union of the European Union
The Economic and Monetary Union is an umbrella term for the group of policies aimed at converging the economies of members of the European Union in three stages so as to allow them to adopt a single currency, the euro. As such, it is largely synonymous with the eurozone.All member states of the...
's guidelines, this is unlikely to happen before 2010.