The Baltic States' dramatic rise in popularity with real estate investors is largely down to the three 'A's: Awareness, airlines and accession. In 2004, Latvia, Lithuania and Estonia joined the EU with immediate benefits to their economies. A rise in the number of cheap airlines flying to the countries has also helped promote the Baltic States as tourist destinations, while a positive press coverage has helped to convince investors of their financial possibilities.

There are indicators that the current boom affecting the Baltic States' real estate markets will not be short lived. Knight Frank, in their forecast for capital growth for
residential real estate markets, predicted that Lithuanian property prices will rise a massive 20 per cent during 2007, topping every other European market. Latvia and Estonia follow close behind, expected to rise 17.5 per cent and 12.5 per cent respectively.

If you're interested in exploiting the potential of Baltic State real estate, then your best bet may be the capital cities. Charming, lively and largely unspoiled, Riga, Tallinn and Vilnius have proved a big hit with international tourists over the last few years. Real estate investors have also begun to branch out into secondary cities. The ease of purchasing property in the Baltics has also been an important factor in attracting overseas real estate buyers. This, coupled with low rates of deposit and strong rental markets, will no doubt help to guarantee the Baltics' position as a top investment hotspot well into 2008.

Estonia
Nestled between Latvia in the south and Russia in the east, Estonia is mainly known for its beautiful coastline and its charming historical towns. Of the three Baltic nations, it is arguably the most westernised, tending to identify itself more with its Nordic neighbour Finland than with Latvia and Lithuania.

In recent years, the Estonian real estate market has benefited from a stable political and legal background, a strong tourism industry and a burgeoning economy.  "The Estonian economy expanded by 9.8 per cent in 2006 and is expected to be around 9–10 per cent this year," says Darren Goodson, founder of TallinnProperty and author of How to profit from one of the biggest property booms in Eastern Europe. "Wages are also increasing by around 15 per cent per year. In addition, Foreign Direct Investment is highest in the whole of the EU on a per capita basis."

Real estate investors will also find that the Estonian banks boast competitive borrowing rates, which can sometimes fall as low as 3 per cent interest per annum. The willingness of banks to lend Estonian nationals up to 95 per cent of the purchase price means that property is also affordable for the local population – usually an indicator of a strong and stable market.  Of course, the relative stability of the Estonian real estate market comes at a cost – real estate prices in the country are no longer rising at a rate comparable with Latvia and Lithuania. This certainly doesn't mean that Estonian property is not worth investing in, however, as Goodson explains: "The Estonian real estate market has stabilised from the massive growth over the last few years. Since 2004 when they joined the EU prices have doubled or more. I foresee prices increasing by a modest 10 per cent per year for the next five years, which is still reasonable."

Goodson recommends the capital, Tallinn, as the best bet for prospective buyers. "The best apartments to buy are still one or two bedrooms located in the city centre, near the Old Town and the Central Business District," he says. "The new Tornimae building, for example, has just been completed and prices reached £5,000 per square metre. One of the great advantages of buying in Tallinn is the accessibility. Easyjet now flies to the city for as little as 3.99 euros one-way, while Estonian Airlines recently reduced fares by 40 per cent. However, if you are seriously considering investing in Estonian property then don't overlook some of the secondary towns.

Parnu in particular has been tipped by experts to be a future real estate hotspot. Enjoying the advantages of excellent beaches and beautiful architecture, the city has been dubbed Estonia's 'summer capital'. Prices are also less steep than in Tallinn, it still being possible to pick up a bargain apartment for as little as £20,000 in less central areas. Of the Baltic States, Estonia is arguably the best bet for long-term investment. "I am now finding more sophisticated investors are entering the Estonian property market as opposed to pure speculators as before," says Goodson. "These sophisticated investors are professional real estate investors looking to invest for the long-term." And as they say: you can't argue with the experts!

Latvia
Like Estonia, Latvia can boast both a stunning coastline, home to the so-called 'Baltic Riviera', and a number of picturesque towns. Since the country's imminent EU accession was revealed five years ago, the economy has been booming, and this growth has by no means slowed since accession took place in 2004. "For the past five years, Latvia's GDP growth rate has been one of the highest in Europe, averaging 8.13 per cent from 2000–2005 and in 2006 it reached 10.2 per cent real GDP growth," explains Emma Holifield of international property investment specialists Property Frontiers. She also reveals that unemployment has dropped significantly, standing at 6.5 per cent at the end of 2006.

Riga, the capital, is the largest city in the Baltic States, and is a centre for commerce, industry and finance for the region. It is also the most popular real estate investment spot in Latvia, with the majority of overseas property buyers choosing to keep their cash in the capital. "Gross rental yields in Riga are good at around 4.77 per cent to 5.43 per cent, and due to insufficient supply of rental apartments in residential areas rents are rising," says Holifield. "What is more, prices in Riga old town have allegedly climbed 20 per cent and, in February alone, the price of an average apartment climbed by 4 per cent."
If you don't fancy a city property then there are many stunning Latvian towns along the Baltic Sea coast which represent almost equally good investments. Liepaja and Ventspils, in particular, are seeing a marked increase in foreign investment, and have been earmarked by experts as the next big thing. It's also much more possible to pick up a real estate bargain in a location outside the capital.

Lithuania
In the European emerging property market race, Lithuania is currently winning all the prizes. The country topped the Knight Frank residential growth tables as well as being in the top new EU countries for foreign real estate investment per capita. Over the last five months, reports suggest growth was averaging 13.5 per cent – higher in the more
prestigious regions – and experts predict this could increase to an amazing 20 per cent over the next year.

So whereabouts in the country should you think about real estate investment? According to Charlotte Williams of Someplace Else, it's all about the capital. "Vilnius has the lowest real estate prices in the EU, averaging £1.000 per square metre," she says. "But  a constant rise in demand for new flats and houses means demand is now outstripping availability. Tourism in Vilnius has risen steadily over the past ten years, and this is set to increase significantly in the lead up to 2009 when Vilnius becomes the European Capital of Culture. Lithuania will be the first accession country to have this honour bestowed upon its capital. "Factors contributing to real estate price growth across the country include the prospective euro entry in 2010, growth in average salaries and an undersupply of housing."

Other Lithuanian hotspots worth a look are the towns of Kaunas and Klaipeda. Kaunuas is the second largest town in Lithuania, easily accessible through cheap airline flights and boasts some of the most beautiful architecture in the country. On the coast is Klaipeda, a historic seaport and a great option if you want to take advantage of Lithuania's pristine beaches. Both have booming real estate markets and are becoming increasingly popular with foreign tourists and investors.

Real estate buying process

Latvia real estate buying process
Once you have found a suitable property and had an offer accepted on it, it is usual to sign a preliminary contract which is usually subject to satisfactory searches being conducted. When the contract is signed it is usual to put down a 10 per cent deposit, which can be held in an escrow account until the deal is completed. If all is in order, the Notary Act or Contract of Purchase can be drawn up by the buyer's solicitor. This will need to be signed in front of a notary in Latvia or at a Latvian embassy.

Estonia real estate buying process
The majority of properties being sold to foreign investors in Estonia are brand new, off-plan apartments and houses. To buy off-plan, it is usual to pay a holding deposit and sign a reservation contract. After the property has been completed, the buyers must inspect it and sign a purchase contract in front of a public notary. The balance remaining on the property must be transferred as soon as this is signed, and within a month the stamp duty has to be paid by the purchaser.

Other than a small stamp duty, the only costs associated with buying investment property in Estonia are notary's fees (0.5 per cent of the purchase price), land registry fees (0.25 per cent) and translation fees (between £70 and £100).

Lithuania real estate buying process
Like Estonia and Latvia, Lithuania relies on a notary system and has no restriction to foreigners buying property (although there are various restrictions on land purchase). When your offer on a property is accepted, you will be required to pay a reservation fee of approximately 1,000 euros, followed by a deposit of around 10 per cent. There is no cooling-off period: once you have paid the reservation fee you are bound to the purchase. The final contract must be signed by both parties in the presence of the notary, who then registers the new title deeds with the relevant authorities. Transfer of title can take as little as four weeks.

Click here to read the World of Property interactive i-mag FREE now

Search and browse properties for sale

Related article:
Baltic property is tipped by the experts

To receive your FREE copy of Emerge, our 60 page magazine covering 68 emerging property markets, simply click here, add your contact details and type Emerge into the enquiry box. We'll send you a copy.

Article published 2 July 2007