According to the report, global prices in the first two quarters of 2007 rose by 7.8 per cent per annum compared to 9.6 per cent during the same period of 2006. The report identifies rising interest rates and the tightening of lending criteria seen in many European countries as the two main factors contributing to the general slowdown.
 
"The slowdown in growth is also a consequence of the reining in of unsustainable rates of house price inflation in a number of European markets," the report states. "This is particularly true of Latvia where the rate of year-on-year price growth in the capital continues to slow. While still topping the Knight Frank Global House Price Index, annual price inflation in Riga has been curbed by new regulations on stamp duty introduced earlier in the year with the aim of reducing speculative property investment. The fall in property prices has been felt most in the apartment market, properties typically of interest to speculative purchasers."
 
Other expert reports have also indicated that the Baltic property bubble is under duress. Leading Latvia estate agent Latio revealed that prices in the Greater Riga area fell by 3.5 per cent in June 2007, a shock decline after Latvia was marked as the best performing property market of Q1 2007. The Global Property Guide also released a report querying the wisdom of investing in Baltic property. "The Global Property Guide believes these latest figures signal the end of the Great Baltic Property Price Boom," it said. "Estonia started falling before Latvia, as is normal in the Baltics. We have long suggested that low rental returns in the Baltics mean that investors should be very cautious. Unless the economic cycle has disappeared from economics, it would seem to us that a cyclical peak has approached, and that for the moment investors should pause."
 
However, not everybody is so negative about the future of the Baltic property market. Charlotte Williams of Someplace Else believes that the recent policy changes made by the Latvian government will soon get Latvia's property market back on track.
 
"Recent changes in the capital gains law and mortgage policy was a result of Latvian Government taking on measures to tackle the inflation," explains Williams. "Latvia's high inflation rates were the main reason the country did not qualify to join the euro, which originally was targeted for 2008. The new anti-inflation plan introduced by the Latvian Government earlier this year is a significant first step towards stabilising macroeconomic conditions in order to avoid overheating the market. Recent changes concern bank mortgage policy and property taxes. The new plan should have a positive impact on the Latvian economy in general, stabilise property prices, help move Latvia's plans to introduce the euro forward, etcetera."

Someplace Else is currently marketing the Jurmala Oasis development, situated in a popular area just outside Latvia's capital. You can pick up a Baltic property in this development for approximately £74,000, with apartments scheduled for completion in 2008.

While the Baltic property markets of Estonia and Latvia are cooling off, reports indicate the Lithuanian market has yet to experience a similar slowdown. Williams would put her money on Lithuania as the Baltic property market with the most potential. "It is argued that, in Lithuania, much more economic growth has been generated internally without as much foreign investment driving the property market. This has resulted in average prices being 20-30 per cent lower in Vilnius than in Riga when comparing like-for-like areas.

"What's more, Lithuania is a far larger market. Lithuania's GDP equals the combined GDP of Latvia and Estonia. Whereas what drives the economy is concentrated in the capitals of both Latvia and Estonia, in Lithuania this is spread more evenly. The port city of Klaipeda, for example, is booming, and other smaller population centres of undergoing a similar economic uplift to Vilnius."

If you're considering purchasing a property in Vilnius, then take a look at Someplace Else's Azulous development. Located in an up-and-coming area, apartments in the block are available from the discount price of 29,950. 

Also see the following Baltic property articles:
Baltic property is tipped by the experts
Rich pickings in North and East Europe
Estonia property: one to watch

Read the latest World Property Bulletin ezine now FREE

Search overseas Baltic property

Request a FREE copy of World of Property magazine

Article first published 27th September 2007