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Latvian report
by Euro Reporter
2012-07-16 08:39:43
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Latvia cuts main interest rate for first time since 2010

Latvia’s central bank, which pegs its currency to the euro, cut its benchmark interest rate for the first time since 2010 after the European Central Bank lowered borrowing costs last week. Latvijas Banka reduced the refinancing rate to 3 percent from 3.5 percent, Governor Ilmars Rimsevics told a news conference today in the capital, Riga. Overnight deposit rates were cut by 0.15 percentage point to 0.25 percentage points, while rates on the marginal lending facility were lowered by as much as five percentage points.

The Baltic country’s economy, which expanded a revised 6.9 percent from a year earlier in the first quarter, is at risk as Europe’s debt crisis threatens to derail growth. The ECB trimmed its main rate by 25 basis points to a record-low 0.75 percent on July 5, citing economic weakness.

Latvia’s borrowing costs were cut as “risks for price stability in the medium term are limited and inflation continues to slow,” the central bank said in an e-mailed statement. “The expected negative influence of the European debt crisis,” will also affect the economy.  The yield on Latvia’s dollar bond due 2021 fell 1 basis point today to 4.67 percent. The cost of insuring government debt against non-payment for five years using credit-default swaps rose to 261 basis points from 254, data compiled by Bloomberg show.


Latvian property: the rich man’s boom

During the year to March 2012, the average price of apartments in Riga, the capital, dropped by 1.5%, according to Arco Real Estate (although during the latest quarterly, residential property prices were up by 1.54%). While nationwide, property prices still seem to be falling, it is a different story for house prices in the centre of Riga (the “Silent Centre” and Old Town), in Jurmala (Latvia’s popular resort town).  In Jurmala, for example, property prices rose by around 20% to 45% in 2011, according to online newspaper, LETA.  Prices of new high-end residential projects are also rising.

There were wide variations in house prices throughout the country. By end-2011:
In Jurmala, which has the highest property prices in Latvia, the average price of an exclusive apartment was €4,500 per square meter (sq. m.).
In Riga, the capital, the average price of a standard-type apartment was €583 per sq. m.
Livani has the cheapest housing in Latvia, with an average price of €200 per sq. m.

Land prices were largely unchanged in 2011 compared to the previous year, according to real estate firm, Ober Haus. In the city centre, land prices range from €400 to €1,500 per sq. m. The total number of property transactions in the “Silent Center” was five times higher in 2011 than a year earlier, according to Newsec. In the Old Town, there were eight times more transactions in 2011 than in 2010.   There was an increase in foreign demand primarily driven by Russians and other citizens of former Soviet countries in the Commonwealth of Independent States, partly due to amendments to the Immigration Law in July 2011. “For C.I.S. customers it’s good,” said Vestards Rozenbergs of Baltic Sotheby’s International Realty, “because residency gives them access to other European countries for travel. So the buyer can go to Latvia, and then travel further to Paris or Berlin or other places.”

A foreigner can receive permanent residency in Latvia (according to the Baltic Legal):
if a person invests LVL50,000–LVL100,000 in real estate, depending on the size of the town (LVL 100,000 – in the Riga Planning Region, Jelgava, Daugavpils, Jēkabpils, Liepāja, Rēzekne, Valmiera or Ventspils; LVL 50,000 – in other areas); if a person invests at least LVL 200,000 in a Latvian credit institution in the form of subordinated capital (such transaction must be for not less than five years);
if a person invests LVL 25,000 in the equity capital of a company to be registered in Latvia, following this up with a payment of at least LVL 20,000 in one year’s time.

Construction activity is also up. The total number of apartments completed in Latvia rose 38.8% in 2011, to about 2,662 units, having hit its lowest point in 2010. In Riga, more than 1,500 apartment units were completed in 2011, up from 350 the previous year. Real estate prices in Latvia are projected to remain stable in the near future, according to Newsec. Demand for Latvian properties, especially in prestigious locations, is expected to remain steady in 2012.


Latvia records EU's third highest share of foreign citizens in 2011

In 2011, 17 percent of the resident population in Latvia were foreign citizens, the third highest share across the European Union, according to data from the EU's statistical office Eurostat. 0.4 percent were citizens of other EU member states, the remaining 16.6 percent - citizens of non-EU countries. According to Eurostat, the large number of non-EU foreign citizens in Latvia and Estonia was connected with citizens of former Soviet countries granted non-citizen statuses.

In Estonia, 15.7 percent of the resident population were foreign citizens in 2011, the fourth highest share in the EU. 1 percent were citizens of other EU member states, the rest - citizens of non-EU countries.  In Lithuania, foreign citizens constituted 1 percent of the resident population, the third lowest share among EU member states.

The lowest share of foreign citizens was registered in Poland - 0.1 percent, the highest - in Luxembourg - 43.1 percent.  Overall, there were 33.3 million foreign citizens resident in the EU-27 in 2011, 6.6 percent of the total population, reported LETA..

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