One of the experts in the article was Head of the Lending Department of Rietumu Bank Arthur Juksh, who talked about topical trends in financing and shared his forecasts on the development of some branches of the national economy.
According to Arthur Juksh, Rietumu Bank is now focusing on the financing of real estate development, which includes projects in both commercial and residential real estate, and the construction of new hotels.
Then manufacturing follows, in particular export-orientated – woodworking, the production of building materials, as well as up-to-date sectors such as the production of biofuel and some others. Also transport and transit services, including the transshipment of solid, liquid bulk and general cargo.
A topical trend for Rietumu is also lending for the acquisition of real estate, both residential and commercial, including refinancing of previous loans taken from other banks.
At the same time, speaking about the growing market of real estate development, Head of the Lending Department of Rietumu Bank paid attention to a number of factors that could indicate potential overheating of some of its segments in the future. “As for residential real estate development, there are two contrasting tendencies – the development of new construction and a certain decrease in the number of deals for the acquisition of housing,” said A. Juksh.
According to expert estimates, during the last three years, the volumes of construction in Latvia were growing fastest in the Baltic states, having increased by 33%. The housing prices of the same period grew by 10% on average. Still, the number of deals regarding the acquisition of housing in Riga has started to decrease – in 2018, in comparison with 2017, there was a decrease of 3%, and in the new housing segment, it was as much as 10%.
“These factors, in aggregate with the growth of expenses in construction and the decrease of population in Latvia, in our opinion, indicate a risk of overheating in the new housing segment in some of its categories. New projects with rather large apartments (on average, 70-100 sq. m.) and the price of EUR 2000-2500 per sq. m. can become vulnerable. Taking into account the saturation of the market and the ’average bill’ of EUR 120-200 thousand, developers can face difficulties during sales. Whereas, new housing in the centre of the city at a comfortable price, will most probably keep enjoying demand,” said Arthur Juksh.
Still, in the opinion of the Rietumu Bank expert, one should not expect a ‘rough landing’, similar to the one we faced in 2008-2009, as the current ratio of a salary to the standard housing price per square metre is approximately 1.2, in contrast to 0.3-0.4 in 2006-2007. It means that now, in order to earn for one square metre of a standard apartment, a person has to work for a little more than a month, whereas before the crisis, three months were required for this. For new housing, this ratio is now about 0.75, and it is increasing during the last four years, due to the considerable growth of salaries.
Artur Juksh also indicated the necessity of enhanced analysis when considering projects on the development of new sales areas and standard shopping centres, as this market is extremely saturated. As well as, when assessing ideas in the field of hotel business, which is rapidly developing now. “In Riga alone, plenty of new hotels have appeared during recent years and more will we added in the nearest future. When analysing such business projects, one has to thoroughly evaluate their competitive advantages, experience of the developers, professionalism and motivation of the hotel operator, location and other factors.”
The full text of the article (in Latvian) can be found here . Eleonora Gailisha Mass Media and Public Relations
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