Updated: Mar 2
Latvia and Estonia have much in common, but their real estate markets vary significantly. This blog post explores the fundamental contrasts between these two neighboring Baltic states' respective property investment climates to help entrepreneurs make informed decisions when diving into a new market.
Real estate investment is an exciting opportunity, especially in the Baltic region. However, Latvia and Estonia boast distinct economic qualities - so where do these factors leave their housing markets? The following paragraphs explore property prices versus the cost of living, market competition for buyers and sellers alike, and typical wages across both countries – giving investors a better idea of how accessible each destination may be.
Property prices in Latvia are much lower than in Estonia, making it a more affordable option for buyers.
Latvia offers buyers the chance to purchase dream homes at a more reasonable price than in Estonia. The country has stunning coastal scenery and is well-developed in infrastructure and public transportation. Savvy property investors can take advantage of lower prices, capital appreciation, and rental yields as the market grows. In fact, investing in property in Latvia could be a great long-term decision for those seeking quality construction and an attractive yet affordable price point.
According to Numbeo, buying an apartment in Riga is cheaper than in Tallinn, with the average cost per square meter ranging from €1,300 to €1,800 in Riga and €1,900 to €2,800 in Tallinn, depending on factors such as location, size, condition, and amenities.
Ober-Hauss market report shows that real estate prices in both Riga and Tallinn have significantly increased in 2021, with the cost of apartments in city centers and Old Town areas recording the highest surge. In Riga, the average price of apartments increased by 11%, with the highest rise seen in Soviet-era apartments at 15%. At the end of 2021, these older apartments were priced slightly above €1,000 per sqm, while new apartments in the Riga city center and Old Town ranged from €1,800 to €4,700 per sqm, with luxury properties topping €7,000 per sqm. In Tallinn, the average sqm price for an apartment increased by 15% in 2021, reaching €2,433 per sqm by December 2021. Meanwhile, new apartments cost between €3,000 and €6,000 per sqm, with the average price of new apartments in the city center reaching €3,122 per sqm in Q4 2021. The secondary market recorded an average price increase to €2,303 per sqm in the same period.
These statistics suggest a continued rise in real estate prices in both Riga and Tallinn, making them potentially lucrative investment destinations.
The cost of living is also cheaper in Latvia, which makes it a more attractive option to settle.
Numbeo's data reveals a promising trend: Latvia boasts lower living costs than Estonia, making it an attractive option for people searching for more affordable rent, groceries, and transportation, knowing that Latvian housing is over 20% cheaper on average and grocery prices around 10% less expensive than its northern neighbor. In addition, it makes Latvia a more attractive option for expats looking for a lower cost of living, which could increase demand for real estate in the country.
Housing and healthcare are two key elements to consider when comparing Latvia and Estonia. For those looking for a more affordable living space, Riga reigns supreme: the average cost of renting an apartment in its center is 500 EUR/month versus 700 EUR/month in Tallinn's city core. Similarly, while health expenditures may depend on individual needs, generically speaking Estonian treatments tend to be pricier than Latvian ones.
Again, according to Numbeo's data as of September 2021, Estonia has a higher cost of living index (COI) compared to Latvia, with Estonia's COI at 59.68 and Latvia's at 53.97 (with the baseline being New York City's COI at 100). However, potential residents should remember that cost-of-living can depend significantly on location and lifestyle when deciding between these two countries.
The average salary in Latvia is lower than in Estonia, which means that people can't afford as much property.
It's worth noting that people in Latvia may face more difficulties affording property due to the lower average salary compared to Estonia. According to Eurostat, the average monthly gross salary in Latvia was €1,223 in 2021, while in Estonia it was €1,481.
However, this doesn't mean that all Latvians are unable to purchase property, as salaries can vary depending on many factors such as education level and experience. But, the lower average salary may have an impact on the demand for real estate in Latvia, potentially leading to a decrease in property values or limiting the number of new developments. As such, investors looking to enter the Latvian real estate market may need to approach their investments with more caution and strategy to ensure they can generate returns despite these challenges.
Understanding cultural preferences is a crucial factor in the real estate market, and this is particularly true in the Baltic region, where countries such as Latvia and Estonia show distinct preferences regarding housing choices. Let's take a closer look at some of the cultural preferences in Latvia and Estonia that impact the real estate market, including demand for apartments and houses, preference for new or old homes, payment methods, and climatic factors.
There is a higher demand for apartments in Latvia, whereas in Estonia, there is a higher demand for houses.
In Latvia, apartments are in higher demand compared to houses. This is mainly due to factors such as limited space in urban areas like the capital city, Riga, and the lower cost of apartments compared to houses. Apartments are often more affordable and accessible to younger people or first-time homebuyers who are just starting their careers or building their savings. On the other hand, in Estonia, there is a higher demand for houses as the country has a larger land area and more suburban and rural areas, which makes houses a more attractive option for families or those seeking more space. Additionally, there may be a cultural preference for traditional Estonian wooden houses, which also contributes to the higher demand for houses in Estonia. Overall, the demand for apartments and houses in Latvia and Estonia is influenced by a range of economic, cultural, and demographic factors.
Estonian buyers are more interested in new construction, while Latvian buyers prefer old homes.
Estonian buyers typically favor modern designs and newer constructions, whilst Latvians are drawn to the history and character associated with older homes. In Latvia, these properties can offer more generous living spaces as well as larger plots of land that appeal to those looking for a bigger home or families in pursuit of extra room. Whilst this is attractive for many Estonians too, they may also prioritize features such as energy efficiency alongside access to cutting-edge technology, which tends to be found predominantly within new buildings.
Latvian buyers are more likely to pay cash for a property than Estonian buyers.
It seems that Estonian buyers are more likely to get a mortgage than Latvian buyers. Estonia's mortgage market is more established, with a higher mortgage debt-to-GDP ratio than Latvia. Estonia has implemented policies to promote the growth and stability of its mortgage market, while Latvia's mortgage market has been more volatile, with a higher percentage of non-performing loans. Banks in Estonia may be more willing to lend to buyers compared to banks in Latvia, as Estonia ranks higher in terms of ease of getting credit in the World Bank's "Doing Business 2022" report. In contrast, Latvia has a more limited mortgage market, and banks are more conservative in their lending practices. The application process for mortgages in Latvia can be more stringent, with a higher emphasis on creditworthiness and income verification. Overall, the mortgage market in Estonia is generally considered to be more favorable to buyers, while in Latvia, cash purchases are more common among both domestic and foreign buyers.
The climate in Estonia is cooler than in Latvia, which may be a factor in choosing to invest in Latvia rather than Estonia for some people
Latvia is generally warmer than Estonia due to its more southerly location. This warmer climate may be a factor for real estate investors to consider when deciding between the two countries. The milder climate in Latvia may be more attractive to those who are looking to invest in real estate for purposes such as vacation homes or retirement homes, where they can enjoy the outdoors for more of the year. Additionally, the warmer climate may make Latvia more attractive for agricultural or forestry investments. However, other factors beyond just climate, such as the economic and political climate, availability of financing, and local real estate market conditions, should also be considered when making a real estate investment decision in either Latvia or Estonia.
Now that we have explored the economic and cultural differences between Latvia and Estonia, let's delve into the policy distinctions that can influence the real estate markets in these two countries.
There are fewer restrictions on foreigners buying property in Latvia than there are in Estonia.
There are fewer restrictions on foreigners buying property in Latvia than in Estonia. In Latvia, there were no restrictions on foreigners purchasing real estate, and they had the same rights as Latvian citizens. In Estonia, on the other hand, non-residents were subject to some restrictions, such as a requirement to obtain permission from the local authorities to buy agricultural land or land close to the border.
Foreign investors or citizens residing outside the European Union are not allowed to buy real estate properties on four Estonian islands (Saaremaa, Hiiumaa, Vormsi, and Muhu) and are not allowed to purchase over 10 hectares of forest or agricultural land plots.
However, it's always recommended to check the latest regulations and laws related to foreign investment in real estate, as they can change over time.
The two countries have different approaches to real estate taxation.
Estonia and Latvia are two Baltic countries with comparable geography and culture, yet they have distinct approaches to real estate taxation. Estonia's tax system is location-based, with a tax rate ranging from 0.1% to 2.5% of the property's cadastral value, based on five factors, including size, distance from populated areas, and land use designation. In contrast, Latvia employs a progressive tax rate that has six tax brackets and a tax rate ranging from 0.2% to 3% of the property's cadastral value, based on the property's value. In both countries, there are additional taxes, assessments, and fees that significantly affect investment decisions. Estonia's rental income tax rate is 20%, while Latvia's is 10%. These strategic tax decisions aim to support the economy while attracting potential investors.
Property investors in Estonia and Latvia must factor notary fees into their investment decisions. The amount varies considerably, with Estonian property requiring 0.1-0.5% of the value, while Latvian investments come at a higher price tag between 1.5-2%.
Latvia has a more centralized market, while Estonia has a more decentralized one.
The real estate market in Latvia appears to be more centralized compared to Estonia, according to a report by Newsec, a property investment company. The report highlights that the Latvian market is dominated by a small number of major players, with the majority of transactions taking place in the capital city of Riga. This suggests that the market is highly concentrated in one area, in contrast to Estonia, where the market may be more evenly distributed across different regions, indicating a more decentralized market.
It's interesting to note that in Estonia, a lot of the properties are privately owned, including summer homes and vacation properties. This could suggest that the market is more spread out and decentralized, with individual owners making up a larger portion of the market. On the other hand, Latvia has more apartment buildings, which are often owned by big companies or investors. This could mean that the market is more centralized, with a few big players calling the shots. Of course, it's important to keep in mind that these are just general trends, and there are always exceptions. Plus, what someone might consider a "centralized" or "decentralized" market is up for debate!
Now that we've explored the economic, cultural, and policy distinctions between Estonia and Latvia, let's take a closer look at the investment trends in each country's real estate market.
The Latvian real estate market is more stable than the Estonian market.
When it comes to real estate markets in Latvia and Estonia, experts and market analyses suggest that Latvia's market is generally considered more stable than Estonia's. Following the 2008 global financial crisis, Latvia experienced a slower but steadier recovery with consistent growth in property prices and transaction volumes. This stability was attractive to investors looking for predictable market conditions. In contrast, while Estonia recovered rapidly from the crisis, its market became more volatile in recent years with fluctuations in prices and transaction volumes. The reasons for this volatility include speculation in the market, government policies, and economic conditions. Overall, while there may be some debate over the exact degree of stability in each country's real estate market, Latvia's market is widely viewed as relatively stable and predictable following the financial crisis.
There seem to be more foreign investors in the Latvian real estate market than in the Estonian market.
It is worth noting that both countries have been popular destinations for foreign real estate investors in recent years. Latvia, in particular, has been attracting significant interest from foreign investors due to its relatively low property prices, the availability of affordable real estate investment opportunities, and the country's favorable tax regime.
Additionally, Latvia has implemented various policies aimed at attracting foreign investment, such as streamlined investment procedures and the establishment of free economic zones.
Latvia provides a variety of incentives to businesses through its five Special Economic Zones (SEZs). The Riga Free Port, Ventspils Free Port, Liepaja SEZ, and Rezekne SEZ are designed to spur entrepreneurship in their respective regions. Businesses located within these zones enjoy an array of perks, such as 80% discounts on real estate tax (1.5%)* and corporate income taxes. Plus, rebate on corporate income tax, withholding tax for dividends, management fees, and payments for usage of intellectual property for non-residents and others. These attractive offers will be available until at least 2035.
Estonia, on the other hand, has also been an attractive destination for foreign investors due to its strong economic growth, favorable business environment, and relatively stable political situation.
While it is difficult to say for certain which country has more foreign investors in its real estate market, both Latvia and Estonia have been popular investment destinations for international buyers.
Both countries have seen an increase in foreign investment in recent years, but from different countries - Russia in Latvia and Finland in Estonia.
Latvia and Estonia have become sought-after locations for overseas investors venturing into the European real estate sector. Latvia has a strong appeal to Russian buyers because of their shared cultural background and established economic connections; many Russians own homes there already. Conversely, Finnish investment in Estonian property is on the rise thanks to Finland's geographic proximity as well as its historical ties with Estonia – something which entices Finns towards investing in new construction projects or residential properties within this flourishing market hub.
Estonian investors have been drawn to the Latvian real estate market due to lower property prices and higher returns on an investment relative to their native country. This trend has only grown stronger in recent years, prompting Finnish eyes now looking toward Latvia's increased potential for good returns. As the price of properties continues its upward trajectory, there is no sign that this interest will be waning anytime soon.
In conclusion, the real estate markets of Latvia and Estonia have differences that are shaped by factors such as their economy, taxation policies, cultural preferences, demand, and investment trends. The Latvian market is generally more competitive, centralized, and affordable than the Estonian market, with more demand for apartments and a lower average price per square meter. Meanwhile, Estonia's market is more decentralized, with more demand for houses and higher property prices. Both markets have seen an increase in foreign investment, with Latvia attracting more investors due to its affordable properties and higher rental yield. Additionally, the cooler climate in Latvia and fewer property taxes make it a more attractive option for people looking for a place called home and investors. Overall, both markets offer unique opportunities for buyers and investors, and we at LifeInvest® are focusing on investing in Latvia's property sector due to its stable market, less stringent foreign investment regulations, cheaper cost of living, and better quality of life overall.
Don't miss out on the chance to invest in the vibrant real estate markets of Latvia and Estonia - visit our Invest section to explore our latest investment opportunities and discover the exciting possibilities that await you in the Baltics!