Last year (2017) was stable in the highest comfort level or premium property market – in terms of business activity, it was equivalent to 2016 and marked by “sorting out” of prices.
This year, no significant changes are forecasted in the premium property rental market situation; however, in the summer, the entire rental market, not only the high-end property segment, could be affected by the upcoming Song and Dance Festival and Latvia’s Centenary celebration, leading to a higher than usual demand for short-term rental of real estate and thus contributing to an increase in rent prices.
Such an assessment and forecasts were expressed by Marika Alksnīte, Rental Project Manager at Baltic Sotheby’s International Realty, working with premium rental properties in the company’s database.
At the very beginning of the conversation, the specialist wished to inform all the law-abiding landlords who actively show interest in the existing tax system: “Many of our clients have had questions on how to deal with the SRS this year regarding the signed rental agreements and whether these agreements have to be registered somewhere. We would like to inform that the system still remains the same: the owner, upon conclusion of a rental agreement, informs the SRS about it within 5 working days and pays 10% of the income from the rent, just like last year. At the same time, discussions about the mandatory registration of rental agreements in the Land Register (or in another register) have not yet come into effect by law, therefore, if the owner and tenant agree to it, then the rental agreement can be registered in the Land Register voluntarily (not mandatory).”
The forecasts have come true
When analysing processes in the highest comfort level or premium property market evidenced by the experience of Baltic Sotheby’s International Realty, M. Alksnīte concludes that the forecasts about 2017 not bringing any major changes to the market have come true. “The last year was stable: comparing developments of the last year and 2016, it can be said that in terms of the number of transactions both years were similar,” she says.
The highest demand for rent (long-term: for more than a year) last year was for 2-3 bedroom apartments in the centre of Riga and in the so-called quiet centre for 900 to 2,500 euro a month and also for at least 3-bedroom houses with adjoining land in a good, quiet, green place: most often in Jūrmala, Mārupe and Baltezers for 1,500 to 5,000 euro a month.
The specialist explains such a price grading as follows: the following comfort components are important for clients in the premium segment of the rental market: apartment/house in a good place, with green surroundings, convenient traffic infrastructure and accessibility of other objects, parking facilities, while the dwelling itself has to be renovated and furnished according to the highest standards – using modern high-quality materials, equipped (and furnished), with security systems (with a concierge in case of apartment houses); it is important for some clients that there is a possibility to have pets or there are leisure facilities nearby. All of the aforesaid things determine the price gradation: if, for example, the flat is in a building with no elevator, on the 5th floor, and it has not been recently renovated, then the price will certainly not be the highest, the specialist explains.
Non-residents still make the client base of this segment: about 80% of premium property tenants are either employees of foreign embassies or multinational companies.
Prices are being “sorted out”
A trend of prices in the premium property rental market being sorted out was observed last year – premium-level properties are offered for an adequate price that is acceptable by clients. At the same time, the prices of apartments offered in the premium segment that have not been renovated lately, have a less contemporary interior design and have been available for rent for a long time, decreased last year, experiencing a drop of 10-15%. “Property owners have to understand that they can not rent their property for the same price as two or three years ago if the property has not undergone any repairs, if the property is not renovated and refurbished according to the requirements of this segment. The price must be adequate and corresponding to the offer,” says M. Alksnīte.
M. Alksnīte mentioned the object in Riga, Pumpura Street 3, as an example of good cooperation, when the landlord consulted specialists of Baltic Sotheby’s International Realty, took into consideration recommendations on client preferences and furnished apartments properly. This allowed the owner to rent all the apartments in the building successfully and in a relatively short time.
When asked about the most significant long-term rental transactions of the last year, the specialist mentioned the rent of a private house for 10,000 euro a month, as well as several apartment rental transactions in the centre of Riga for embassy employees for 2,000 to 2,500 euro a month.
National holidays could affect the rental market this year
Despite the fact that economic growth of more than 4% is forecasted this year in our country, as well as salary growth, with the gross salary reaching 1,000 euro a month, M. Alksnīte does not think that it will have a significant impact on this segment of the market, because “our client base is quite constant and limited, – with the budgets for rent approved by foreign institutions, although we more and more feel the growth of the prosperity of the local people”. The economic boom might more likely have an impact on the rest of the rental market, which will also be affected by the Song and Dance Festival that will take place in the summer and Latvia’s Centenary celebration in the autumn that could boost the demand for short-term rental properties while also raising prices, and not just for properties in Riga, but also in Jūrmala. Clients of Baltic Sotheby’s International Realty have already begun to show interest in rental offers for the said period. Owners are usually more interested in long-term rental of their property, although there are some examples of successful short-term rental: for example, there is landlord at Kalpaka Boulevard who rents apartments for half a year.
M. Alksnīte believes that, in 2018, the premium property market will not be subject to large shocks and changes in the volume of transactions or prices. “This market segment is always buzzing with activity and dynamics, and this year will be no different. Property for rent is being sought at the very last moment, because the market supply is constantly changing,” she explains. Also, the information available does not suggest that many new premium-class objects will enter the market, as currently transactions in this market segment are carried out mostly within the scope of the current offer. New rental properties are mostly apartments and houses of investors, who have purchased them as investment objects in order to earn money from renting them.
“In general, I expect this year to show some trends of the previous years, and we will be glad if it turns out even more active and productive,” concludes M. Alksnīte.
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