Homeowner: “The worst for tenants is over”

Renting in 2023: Will prices fall?
The rental housing market froze half a year ago in anticipation of the heating season: utility bills went to records, which could lead to a decline in demand. But now the worst is over, the head and owner of the KA Invest Group Alexei Kashkarov, as well as the homeowner Grigory Sander, comment on the situation. They assure that no special shocks are expected this year: rental prices, utility bills and the number of apartments offered for rent will remain at the same level.

Utility bills: the worst is over

In September 2022, a general cooling in the real estate market led to a decline in the rental market. “There was a drop in interest and a little panic in the rental of real estate. But as soon as the tenants received the first bills for October and November, it became clear that no catastrophe was in sight. Tariffs for gas used for heating, taking into account state support, are quite comparable with the tariffs of last year,” explains Alexey Kashkarov.

Landlords fought for tenants in various ways and ensured that utility bills remained affordable. Someone reduced the air temperature in the premises by 1-2 degrees, others carried out cosmetic and major repairs of buildings and apartments, renovation and repair of heating systems.

“Our company KA Invest Group, three months before the heating season, with the consent of the residents, formed a deposit fund for heating - 1.5 euros per square meter, in order to compensate for these funds in the winter. This helped reduce the burden on the tenants' budget. In our houses, heating this winter did not cost 3-4 euros per square meter. Taking into account the collected deposit, we managed to reduce this amount to 1.5 -2.5 euros, which is significantly less than last year. In general, the account has become lower by 40-50%,” notes Alexey Kashkarov.

In addition, during the heating season, gas tariffs fell twice. Now there is also a drop in stock prices for gas. And winter is coming to the end, so the amounts in apartment bills will only decrease.

“In the houses serviced by KA Invest Group, taking into account the deposit, as well as the repair work carried out to insulate the houses, this winter the heating bills were even lower than last year,” Grigory Sander adds.

At one of the properties, KA Invest Group insulated attics with PAROC bulk stone wool. This type of insulation does not require long coordination and design, such as facade insulation. At two other facilities of the KA Invest group of companies, where it was possible, the facade was partially warmed up and renovated. Many walls of the arched passages were also warmed up.

Aleksey Kashkarov notes that the residents themselves have become more economical. Consumption of thermal energy compared to last year decreased by 15-30%. And in general, houses with gas heating turned out to be more economical than houses connected to Rīgas Siltums.

Demography bomb

In May-June of the last year, there were almost no two-room apartments in the offer. By autumn, the opposite trend was observed: one-room apartments were in demand, 2-room apartments in many objects remained available.

Since January, the demand for rental housing has stabilized. “People realized that utility bills are bearable and began to look for apartments to rent again. Occupancy has returned to the pre-crisis period and is 97%. “There are fewer empty apartments than there were in July and August. Two-room apartments are available from 250 euros plus utilities, if in good condition and furnished, then from 300 euros. Prices are still stable," Alexey Kashkarov believes.

The payment discipline is no worse than in previous years, the co-owner of Ka Invest also notes.

A big problem for the rental housing market is the demographic hole. ”12 years ago, when Ka Invest Group came to Riga, there were 673 thousand inhabitants, now there are 605 thousand - 10% less. We have experience of working in different countries and I don't know of any other capital in Europe where the population has decreased so much. We notice that the number of able-bodied Latvians among tenants in the capital is decreasing from year to year. More and more housing is rented by foreigners - residents of India, Pakistan, China. About 6-7% of tenants are refugees from Ukraine,” Grigory Sander says.

Over the past 20 years, Riga in the list of capitals of the former USSR in terms of population has dropped from eighth position to 13th. “If this continues, we will be last on the list,” adds Sander.

The situation with the outflow of labor force abroad puts additional pressure on the real estate rental market.

“On the one hand, inflation drives up all prices, on the other hand, we are in a demographic hole and we have as many people as we have,” the homeowner concludes.
Residential rental forecasts for 2023

A few years ago, there were many apartment owners in Latvia “just in case” when people working and living abroad left apartments and did not rent them out. This winter, such housing was either rented out or sold, which affected the number of properties offered.

Although an increase in demand for rental housing has been recorded recently, price growth in this segment is not predicted. “I assume prices will go up in economical new builds. But this is not more than 10% of the market. The rest of the residential rental stock is old houses, where, given the demographic situation, price increases are not expected. Moreover, utility bills, when compared to the three capitals of the Baltic countries, in Riga were and remain the highest. In Tallinn, many pre-war houses and Soviet buildings were renovated, in Vilnius there are fewer pre-war houses, but more new buildings. In addition, thanks to the development of high-class offices, in the capitals of neighboring countries, there is not an outflow, but an influx of population, which affects the value of real estate.

In the longer term, the rental housing market will experience another problem - the number of able-bodied Latvians will only decrease. If in the next 10 years Latvia does not attract 100-200 thousand foreigners or does not implement the problem of remigration, then a real estate crisis in Latvia is inevitable. Riga is in danger of becoming like Detroit, where the districts have died out, there is practically no employment there, and because of this, crime is flourishing.