Country Guides Country Guide: The Baltic States

Date Published:

18/06/2009

The three countries have fully embraced the free market since stating their independence from the Soviet Union in the early 1990s.

EU accession in 2004 saw their economies kick on a pace to become Europe’s fastest growing. In 2005 year on year, each nation’s GDP per capita – the benchmark by which economists measure a country’s growing prosperity – increased by the greatest margin amongst the EU 25 member nations (now EU27), recording an average of almost 10 per cent growth. However, the wheels have fallen off since and each country’s economy has shrunk. Inflationary pressure, stagnant GDP and unemployment make it difficult to make a case for investment in property in the short term.

Investment Potential: Capital Appreciation

From as good as it gets scenarios from 2005 to 2007 – Riga, Latvia, was number one globally in 2006, according to the Knight Frank Global Index; Tallinn, Estonia, led the way in 2005; and Vilnius, Lithuania, in early 2007 – today property price crashes of between 15-30 per cent have affected each of the major markets in each country. And, there is little sign of an end in sight.

Investment Potential: Rental Yield

Rental yields didn’t keep up with capital increases in the heady days – how could they? Locals simply couldn’t afford to pay the rents that the capital increases warranted to maintain a decent yield. Today, falling capital prices and stagnant rental rates means yields are better but don’t expect to gross more than 4-6 per cent in Riga, for example. Additionally, a whopping 25 per cent tax on rental income reduces that figure to 3-5 per cent - barely a ‘washing your face’ yield if you have a mortgage with an interest rate of 2-3%.

For an indication of likely yields, look at the weekly rental prices on holiday lettings websites: holidaylettings.co.uk and www.ownersdirect.co.uk