Latvia regained independence from the Soviet Union in 1991. Situated on the Baltic coast, Latvia is a low-lying country with large forests that supply timber for construction and paper industries. The environment is rich in wildlife. Latvia also produces consumer goods, textiles and machine tools. The country attracts tourists from all over Europe.

A country in transition, hellbent on shedding its former old Soviet image, the Latvia of today is vibrant, enigmatic and altogether mesmerising. Refreshingly unpretentious, Latvia manages to tantalise even the most jaded traveller. Many arrive expecting little and leave overwhelmed, certain they've uncovered long-buried treasure.

Latvia and the EU including links to Latvian government sites and Tourist Information.

The property market in Latvia seems to be increasing in appeal almost daily as more properties become available for sale at such incredibly attractive prices. Because there are very few restrictions on foreigners wishing to buy property in Latvia the market has gained wide appeal and foreign direct investment into the property sector is now flowing freely.

Foreigners can freely buy, develop and dispose of movable property (buildings) in Latvia, provided that the property was acquired separately from the land on which it stands. Direct acquisition of land by foreigners is subject to permission of the local municipality.

Legal: As with all emerging markets it cannot be stressed strongly enough that independent legal representation for the investor is an absolute must.  The intricacies of property law in Latvia are such that a lawyer is a necessity to ensure a property’s title deeds are in order and that any real estate being bought is not protected by the state from being developed for example.

Those interested in buying property in Latvia can choose to employ the services of a lawyer before beginning their search or, at the latest, once they have submitted an offer to purchase a particular property.

Purchasing Procedure: In Latvia the asking price for property is usually inflexible but it does often contain the estate agent’s fees and also the VAT; it’s worth bearing these facts in mind when looking at properties and checking which if any will incur additional agent’s fees or value added tax (which can be up to an additional 18% on new build properties).

Once a suitable property has been found and an offer made and accepted, it is usual to sign a preliminary contract that is conditional to satisfactory searches being conducted.  When the contract is signed a 10% deposit is usually paid.  This can be held in an escrow account by the lawyer or notary handling the legal side of the property buying process.

As with the majority of emerging property markets worldwide there are occasionally issues in Latvia relating to the correct registration of title deeds with some properties being without title deeds and some having mortgages and claims against them.  It is therefore imperative that the investor’s solicitor conducts thorough and detailed research and examination of the specific property’s title deeds in the central land registry known as The Land Book before the Notary Act is signed and the sale completed.

Having paid the 10% deposit the property will be removed from the open market while title searches are conducted.  Once all is found to be in order with the property the Notary Act or Contract of Purchase can be drawn up by the buyer’s solicitor and this will then need to be signed in front of a notary in Latvia, or in the buyer’s local Latvian embassy if they cannot be in the country on the day of contract completion.

If a property investor in Latvia chooses to purchase off plan then this final contract is not actually signed until the property is completed.  Annual property taxes in Latvia are an additional 1.5% of the value of the property as assigned by the state; this value is always lower than the actual purchase price of the property.  And a property investor should be aware that they will also have to pay their lawyer’s fees, state duty of 2% for the title deed to be registered in their name and sometimes a value estimation fee of around GBP 100.

Financial Crisis, 2008/09: After house prices started falling in early 2007, the average price of standard apartments in Riga fell 35% during the year to December 2008. The average price of standard apartments was €934 per sq. m., about the same level in December 2005 and down 45% from its peak level in April 2007.

The Latvian housing market bubble began to burst in early 2007, initially as part of the government’s effort to tame inflation and discourage property speculation. However, the global financial meltdown devastated Latvia’s economy, leading to the world’s worst house price freefall in 2008.

The average price of standard apartments in Riga slipped 2.85% in 2007, in sharp contrast to the enormous price increases of the past few years. The average price rose 62% during 2006, and 35%during 2005.

With the banking and financial sectors in near-collapse, Latvia’s housing market is in chaos. As housing oversupply continues to rise, house price are expected to fall for two years or more. The economic crisis has now spilt over to the political arena, with protests rocking the capital; which could further impact economic confidence and the housing market.

Foreigners can freely buy, develop and dispose of movable property (buildings) in Latvia, provided that the property was acquired separately from the land on which it stands. Direct acquisition of land by foreigners is subject to permission of the local municipality.

Rental Market: The crisis continues in Latvia, and there is no sign of recovery yet. From the viewpoint of property investment, the bare facts are depressing. Gross rental yields on apartments in the centre of Riga are quite poor, ranging from 3.71% to 4.48%. It would be hard to be enthusiastic about buy-to-let investment at these levels.

Rental yields are, however, considerably better on suburban apartments. The contrast is clear: suburban apartment yields average 5.47%, while city centre apartment yields average 4.05%.

People often ask, when will buying investment property in the Baltics be attractive again? We can only suggest that this is not the stuff of which property recoveries are made. Not yet, anyway. So hold off on property investment. The usual pattern is that economic activity begins to rise, leading to rising rents, and then property investors begin to regain confidence.

Rents can be freely agreed between landlord and tenant. Rent control exists only on denationalized buildings.

Rental contracts for any period are possible. Contracts terminate on expiry of the term; no notice is necessary. If the tenant withdraws from the lease, he can be required to pay the whole amount of the lease or rental payment. The freedom to contract is extensive.

There is no maximum deposit.

Taxes: Non-residents are taxed on their Latvian-sourced income. Married couples are taxed separately.

Non-residents earning income in Latvia are taxed at a flat rate of 25%. Non residents are often taxed by withholding and are only eligible for allowances and credits available to residents if they are residents of EEA countries and are earning at least 75% of their income from Latvian sources. Income generating expenses may be deducted from taxable income.

As of 01 January 2008, business income is taxed at a reduced rate of 15%. To avail of the reduced tax rate, taxpayers must register their economic activities with the tax authorities.

RENTAL INCOME, Non-resident property owners who register their economic activities with the tax authorities are liable to pay tax on their rental income at a reduced rate of 15% and can deduct depreciation expense when computing for the taxable income.

The annual tax depreciation rate of buildings is allowed up to 10% of the property value.

CAPITAL GAINS, Capital gains from the sale of property, realized by a non resident, are taxed at the ordinary income tax rate of 25%, if the property was sold to a non-resident or a private person.

Property tax is levied in Latvia. The tax is levied on the cadastral value of the land, at 1.5%. Local authorities are allowed to grant discounts on this tax for certain taxpayers. Property tax paid is also deductible for income tax purposes if the real estate property is used for business or commercial purposes.

Map of Latvia

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Disclaimer: This guide is for information only and should not be relied upon as definitive. Details have been obtained from various sources and although we have done everything possible to ensure that it is correct, we cannot accept responsibility for it or guarantee its accuracy. This is because processes and laws change frequently, and may also vary dependant upon personal circumstances. You are welcome to use the information provided, but should always obtain confirmation of specific details and get independent specialist and legal advice in the country that the information refers to.

10-11-2009