All three Baltic States came close to the top of Knight Frank's 2007 Global House Price Index, while the same report predicted that Lithuania would enjoy the highest capital growth in its residential property market over the year.

Halfway through 2008, though, and experts were singing a different tune. The recently released Knight Frank Global House Price Index showed Baltic property to be some of the worst performing in Europe – Latvia was right at the bottom of the index, with prices falling by 24.1 per cent during the second quarter of 2008, while prices in Estonia and Lithuania fell by 16 per cent and 9.9 per cent respectively. Arco Real Estate reinforced the figures given by Knight Frank, revealing that house prices in Latvia fell 25 per cent in June 2008 from a year earlier.

Experts are suggesting that the reverses suffered by Baltic property are partly a result of poor economic management. "After some years of strong economic growth and record-breaking investments on the property markets, the Baltic countries have been hit by rising inflation," says Marie Bucht, Managing Director of Nordic property specialists Newsec Advice. "This has necessitated measures to cool the economy, especially in Estonia and Latvia."

However, Bucht believes that the setback to Baltic property is temporary. "The concern on the international and financial and credit markets that arose in the late summer of 2007 has also affected the Baltic region. Nevertheless, the region is judged to have great future potential, and interest from investors remains strong."

Although both property prices and rental returns are falling in the Baltics, investors need not cross the region off their list of potential hotspots. The key to a  successful Baltic property investment is now to choose your location carefully. "In the present situation, investors are interested mainly in 'safe' properties such as those located in central areas of the capital cities, where there are creditworthy tenants with long and stable leases," says Bucht.

There are currently some good deals to be had in the Baltic capitals, with Lithuania Off-plan Property offering renovated apartments in Vilnius for 82,000 euros. Property in Estonia has new, one-bedroom apartments available in Tallinn from 79,889 euros.

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For more information visit:
www.newsec.se
www.lithuania.offplanproperty.info
www.property-in-estonia.co.uk

Article first published 17 September 2008