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The real estate market in Latvia: 2024 forecast

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As we step into the year 2024, the real estate landscape in Latvia continues to evolve, presenting both challenges and opportunities for investors, homeowners, and industry stakeholders.

In this article, we will give you a clear picture of what's happening in Latvia's real estate scene for the year ahead.

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How's the Latvian economy doing?

Current state

The real estate market in Latvia, like in many countries, is closely intertwined with the nation's overall economic health and political stability.

Latvia's economy has seen various phases, from post-Soviet restructuring to integration into the European Union and the adoption of the euro. These changes have had significant impacts on the real estate sector.

Latvia's economy has generally been stable, especially since joining the EU in 2004. This stability is crucial for the real estate market as it attracts both local and foreign investors. However, like many countries, Latvia experienced economic challenges during the global financial crisis around 2008, which affected its property market. Prices fell, but since then, there has been a gradual recovery.

The housing market in Latvia is diverse, with a mix of old Soviet-era buildings and new developments.

Riga, the capital, is the hotspot for real estate, with growing demand for both residential and commercial properties. Other cities like Jurmala are also popular, especially for luxury properties and summer homes.

Government policies have historically played a role in shaping Latvia's housing market. Initiatives to improve housing quality, especially in older buildings, and to encourage new development have been significant.

Taxation policies, including property taxes, also influence investment decisions.

More recently, there have been efforts to regulate the market more effectively. This includes tighter mortgage lending standards and measures to address housing affordability. Notably, Latvia's 'golden visa' program, which allows non-EU citizens to gain residency by investing in property, has attracted foreign investors, particularly from Russia and China.

As for the appeal to investors, Latvia is seen as a promising market. The country's entry into the eurozone has enhanced its attractiveness, offering stability and ease of transaction.

Popular investment areas include city centers and tourist spots, with a particular interest in modern apartments and commercial real estate.

Specific incentives for foreign investors include the potential for residency and the relatively low property prices compared to Western Europe. However, drawbacks include a smaller market size and potential language barriers. It's also essential to be aware of legal nuances in property transactions and ownership laws.

Comparing real estate prices in Latvia to its neighbors, like Estonia or Lithuania, reveals a generally competitive market.

Prices in Latvia tend to be lower than in many Western European countries, making it an attractive option for investors looking for value.

Outlook and forecast

Latvia's real estate market does have unique factors that set it apart from others.

One significant aspect is its geographical position as a Baltic state, which gives it strategic importance for trade and investment between Europe and Russia. This has historically influenced the demand for both commercial and residential real estate, especially in areas like Riga, which is a significant economic hub.

In terms of forecasting Latvia's economy and stability, several indicators suggest a cautiously positive outlook.

The country has shown resilience in recovering from past economic downturns, and its integration with the European Union provides a stable economic and political framework. However, external factors such as geopolitical tensions in the region and global economic trends can impact Latvia's economy.

Looking at regional growth, Riga, as the capital, consistently shows the fastest growth due to its economic activities, infrastructure, and population density.

Other regions like Jurmala are also growing, driven by tourism and real estate investment, particularly in the luxury segment.

Comparatively, Latvia's economic forecast aligns with its Baltic neighbors, Estonia and Lithuania, all showing moderate growth. These countries share similar challenges and opportunities, including their reliance on European trade and investment.

Regarding government policies in 2024 that could affect the real estate market, several areas could see changes. For example, there could be adjustments in property taxes, housing regulations, or investment incentives like the 'golden visa' program.

Such changes could either stimulate or slow down the real estate market, depending on their nature and implementation.

Specific improvements in the country that suggest a positive impact on the real estate market include ongoing infrastructure projects, such as improvements in transportation and urban development. These projects can increase property values and attract investment in affected areas.

Additionally, Latvia's continued focus on technological innovation and business-friendly policies could enhance its appeal as a commercial real estate destination.

However, potential risks should not be overlooked. Economic dependence on external factors like EU trade policies or regional stability can be a double-edged sword. A downturn in the EU economy or increased tensions with Russia could negatively impact Latvia's real estate market.

Additionally, internal challenges such as demographic shifts with an aging population and emigration can affect housing demand.

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What about housing prices in Latvia?

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Current state

In Latvia, the trend in real estate prices over the past few years has been somewhat varied, reflecting both local and global economic conditions.

After recovering from the 2008 financial crisis, Latvia's real estate market experienced a period of steady growth. This growth was partially fueled by the country's economic stabilization and integration into the European Union, which boosted investor confidence and demand.

During the 2008 crisis, like many countries, Latvia saw a significant drop in property prices. The crisis hit the Latvian economy hard, leading to a sharp decrease in real estate demand and values.

However, since then, the market has gradually recovered, with prices in recent years showing an upward trend, though not as dramatically as in some other European countries.

Comparing current real estate prices with those a decade ago, there's a noticeable increase. This rise can be attributed to several factors, including economic growth, increased foreign investment (partly due to the 'golden visa' program), and general market confidence.

However, this growth has not been uniform across the country.Currently, the real estate prices are generally rising, though the rate of increase varies by region and property type. Urban areas, particularly Riga, have seen the most significant growth. Riga, being the capital and economic center of Latvia, attracts a mix of domestic and international buyers, driving up prices.

Other areas experiencing growth include Jurmala, known for its luxury properties and appeal to wealthier buyers, including foreigners.

In contrast, rural real estate prices in Latvia are typically much lower than urban areas. The gap between urban and rural prices is significant, reflecting the concentration of economic activity, infrastructure, and services in cities.

Rural areas, while offering more affordable options, don't have the same level of demand, leading to slower price growth.

Several specific factors are driving these trends. In urban areas, the demand is influenced by economic opportunities, better infrastructure, and amenities, attracting more residents and investors.

The development of new residential and commercial properties in cities further drives up prices. In rural areas, the slower economic development, lesser job opportunities, and outmigration to urban centers or abroad contribute to lower property demand and prices.

Outlook and forecast

In Latvia, various economic and demographic factors are influencing the current state of real estate prices.

Understanding these factors helps in grasping the dynamics of the market.

One significant economic factor is the level of foreign investment in the country, particularly in real estate. The 'golden visa' program, which allows non-EU citizens to gain residency by investing in property, has increased demand, especially in urban areas and luxury property markets. This influx of foreign capital can drive up prices.

Demographically, urbanization trends are a key influencer. As more people move to cities for employment and educational opportunities, the demand for urban housing increases, pushing up prices in these areas.

Riga, as the capital and largest city, is a primary beneficiary of this trend.

Additionally, Latvia's overall economic growth and stability play a role. As the economy grows, so does the purchasing power of residents, leading to increased demand for housing and, consequently, higher prices.

Looking towards the future, several factors could lead to an increase in housing prices. Continued economic growth and stability will likely bolster the real estate market.

Infrastructure projects and urban development initiatives can make certain areas more attractive, leading to increased demand and higher prices in those regions.

The development of the IT and service sectors in urban areas, particularly in Riga, could also contribute to price increases. As these sectors attract more professionals, the demand for housing in nearby areas is likely to grow.

However, it's important to note that these increases might not be uniform across all regions. Urban and economically active areas are more likely to experience significant price increases compared to rural or less economically vibrant regions.

Conversely, there are factors that could lead to a decrease in housing prices. One potential risk is global economic instability, which could reduce foreign investment and lower demand for real estate. Also, any geopolitical tensions in the region can impact investor confidence negatively.

Domestically, demographic challenges like an aging population and emigration could lead to decreased demand in certain areas, particularly in rural regions or smaller towns.

This could result in stagnating or declining housing prices in these areas.

Another factor to consider is the possibility of changes in government policies.

For instance, alterations to the 'golden visa' program or changes in property taxation could make Latvia less attractive to foreign investors, potentially cooling off the real estate market.

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How's the demand for the real estate market in Latvia?

Current state

In Latvia, the current demand for residential real estate exhibits some intriguing characteristics.

The market dynamics of buyers and sellers can vary based on location and property type. In major urban areas like Riga, there tends to be a stronger demand, with more buyers looking for properties than there are available. This demand is driven by the city's economic opportunities, lifestyle amenities, and infrastructure development, attracting both local residents and foreign investors.

The supply of new housing is an ongoing challenge in meeting this demand.

While there has been development, especially in urban areas, it might not always align perfectly with the demand in terms of affordability, location, or property type.

This discrepancy can lead to a competitive market, especially for properties that tick the most boxes for buyers – such as modern amenities, good location, and reasonable pricing.

Speaking of what buyers are looking for, preferences can vary widely. In urban areas, there's a noticeable demand for modern apartments with amenities and good connectivity to the city center. This is particularly true among younger buyers and professionals. On the other hand, there's also a market for larger, family-oriented homes, often located in suburban areas or smaller towns close to major cities.

The luxury market, particularly in areas like Jurmala, caters to a different segment, often targeting affluent buyers and foreign investors looking for high-end properties.

The current interest rates for mortgages are a crucial factor affecting buying power and demand. If interest rates are relatively low, this generally boosts buying power, making mortgages more affordable for consumers and stimulating demand for housing.

However, if interest rates rise, this can dampen demand as borrowing becomes more expensive, potentially leading to a cooling off in the real estate market.

As for government policies and regulations, these can significantly impact the real estate market. Changes in tax policies, such as adjustments in property taxes or capital gains tax, can influence investment decisions.

Subsidies for homebuyers, if available, can encourage first-time buyers or support particular demographics in purchasing property.

Zoning laws and regulations around development can also shape the supply side of the market, influencing what types of properties are built and where.

Outlook and forecast

Demographic shifts, such as aging populations and urbanization, are significantly influencing the real estate market in Latvia.

An aging population can lead to increased demand for smaller, more manageable properties, often in well-serviced urban areas where healthcare and other essential services are readily accessible. On the other hand, urbanization, a trend where people move from rural to urban areas in search of better employment and lifestyle opportunities, boosts demand for housing in cities, particularly Riga.

Current trends in household formation are also shaping the real estate market. There's a growing preference for smaller family units, which influences demand for smaller apartments or houses.

This trend is particularly noticeable in urban areas where young professionals and small families are looking for affordable and practical living spaces.

Regarding real estate as an investment, there's a noticeable trend towards buying properties for rental income, especially in urban centers. With the rise of short-term rental platforms and a steady flow of tourists and business travelers, many investors are purchasing properties to rent out.

Apartments in city centers or near major tourist attractions are particularly sought after for this purpose.

Cultural trends, such as a growing awareness of environmental issues and a desire for sustainable living, are also influencing the housing market.

This is leading to increased interest in eco-friendly homes, which use sustainable materials and technologies to reduce their environmental impact. Such properties are not only attractive to those with environmental concerns but also to those who see the long-term value in energy efficiency and sustainability.

The trend of buying properties as investments rather than for living is evident, especially in urban areas and among foreign investors.

This has led to a segment of the market where properties are bought primarily for their rental income potential or for capital appreciation.

Foreign investment plays a crucial role in Latvia's real estate market. Programs like the 'golden visa', which offers residency in exchange for real estate investment, have attracted a significant number of foreign investors.

This has increased demand for certain types of properties, such as high-end apartments and luxury homes, especially in areas like Jurmala.

Regarding regulations, foreign investors face some restrictions but also enjoy certain encouragements.

While these regulations ensure some level of control over foreign ownership, the incentives, including residency options, make Latvia an attractive market for foreign investors.

Finally, niche markets within the country are experiencing unique trends. The luxury property market, catering to high-net-worth individuals, often sees demand for exclusive properties with unique features or in prime locations.

Another niche is the market for eco-friendly homes, which, while still relatively small, is growing due to increased environmental awareness and desire for sustainable living.

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How's the rental market in Latvia?

Current state

The demand for rental properties in Latvia, particularly in urban areas, is quite robust. This demand is influenced by several factors including economic conditions, demographic shifts, and cultural trends.

In cities like Riga, apartments are in high demand, especially among young professionals, students, and small families.

This preference is largely driven by the desire to live close to work, educational institutions, and urban amenities. Apartments that are well-located, ideally in city centers or near major transport links, are particularly sought after. Tenants often look for features like modern amenities, good internet connectivity, and security in these urban rentals.

In contrast, in suburban areas, there's a noticeable demand for single-family homes or larger apartments.

These areas attract families looking for more space, a quieter environment, and often, closer proximity to schools. The features most sought after in suburban rental properties include size, outdoor space like gardens or balconies, and proximity to local amenities like parks and shopping centers.

Rural areas have a different rental market dynamic. The demand here is generally lower compared to urban and suburban areas, and the tenant demographic is often quite different.

You might find older individuals or retirees seeking a peaceful environment, or those involved in agriculture or local industries. The properties in rural areas are often larger, with more emphasis on land and outdoor space.

The demographic characteristics of tenants vary by region. In urban areas like Riga, you'll find a higher concentration of young professionals, students, and expatriates.

These groups often prefer apartments that are modern, conveniently located, and require minimal maintenance. In contrast, suburban areas are more attractive to families, who prioritize space and proximity to schools and community services.

Income levels and economic factors play a significant role in the type of properties tenants are renting. Higher-income individuals and families are more likely to rent larger, well-located properties with more amenities.

In contrast, students and young professionals, who often have lower incomes, might opt for smaller apartments or shared accommodations to keep costs down.

Certain regions have a high concentration of specific tenant groups. For instance, university towns or areas with higher educational institutions have a significant number of student renters. These areas might see a higher demand for affordable, shared accommodations.

Conversely, upscale urban areas or scenic suburban locales might attract higher-income professionals or retirees, respectively.

Outlook and forecast

The rental market in Latvia is influenced by several key factors.

Firstly, urbanization is a significant driver, with more people moving to cities for work and education, leading to increased demand for urban rental properties. This is particularly evident in Riga, the capital, which attracts a diverse population of students, young professionals, and families.

Another influencing factor is changing work patterns, such as the rise of remote work.

This trend could lead to evolving rental preferences, with potential tenants looking for properties that offer suitable home office spaces or are located in quieter, more spacious areas, possibly even outside the traditional urban centers.

As remote work becomes more prevalent, there might be a shift in demand towards areas that were previously less popular for rentals, including suburban or semi-rural areas that offer a balance between space, comfort, and connectivity.

Specific cities or regions in Latvia are experiencing demographic changes that impact their rental markets.

For instance, university towns or areas with a high concentration of tech companies might see increased demand for rentals from students and young tech professionals. These groups often seek modern, well-connected properties that cater to a dynamic, mobile lifestyle.

Emerging urban areas, especially those experiencing economic growth or infrastructural development, are becoming new hotspots for rental properties.

Areas around new business parks or industries, or undergoing urban renewal, could attract a working population looking for convenient rental options close to their workplaces.

Technological advancements and innovations are also impacting the rental market. The increasing use of online platforms for property listings and virtual tours is making the rental process more accessible and efficient.

Additionally, smart home technologies are becoming more popular, and properties equipped with these features may attract a premium in the rental market.

Sustainability and green living trends are influencing the rental market as well. There is growing interest in eco-friendly homes, particularly among environmentally conscious tenants. Properties that offer energy efficiency, use sustainable materials, or are located in areas with green spaces are increasingly desirable.

This trend is more pronounced in urban areas where tenants are seeking a balance between city living and a sustainable lifestyle.

The rental market forecast varies across different regions of Latvia. Urban areas, particularly Riga, are likely to see continued strong demand, driven by economic activities and population concentration.

In contrast, rural areas may experience less dynamic rental markets, with demand influenced more by local factors such as agricultural or industrial employment opportunities.

The long-term outlook for the rental market in Latvia, considering these factors, seems to lean towards a continued demand for urban rentals, with a possible increase in demand for properties that cater to remote work lifestyles and sustainable living.

This could lead to a diversification of the rental market, with different regions catering to varying tenant needs based on their unique characteristics.

Finally, niche markets within the country, like luxury properties and eco-friendly homes, are experiencing their own unique trends. The luxury rental market, particularly in areas like Jurmala, attracts a high-end clientele, while the market for eco-friendly rentals is growing, albeit from a smaller base, reflecting a broader global shift towards sustainability.

These niche markets add to the complexity and diversity of Latvia's overall rental landscape.

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This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.