Despite this, it has much to recommend it as a property investment choice.

After all, if you're starting at a low economic level, potential development is so much greater.  And Latvia is, undoubtedly, at a low economic level compared with its fellow EU members.

Let's look at the average monthly wage…

Latvia €266 Germany €2,808 EU average €2,335

(Figures courtesy of Eurostat)

Baltic's best

In many ways, Latvia is the jewel in the crown for investors looking at the Baltic Region.  And, indeed, it compares favourably with the rest of the Eastern Eight - the countries that joined the EU last month.  (MAY)

OK, so what leads us to say this?

There are several basic reasons:

• A favourable tax system for foreign property investors
• Relatively cheap property
• Stable currency
• Government spending under control
• GDP is growing at a rapid rate
• Relatively low unemployment

Booming economy

One good indicator of how the Latvian economy is developing is the pattern of FDI in Latvia.

According to Alf Vanags, director of the Baltic International Centre for Economic Policy Studies (BICEPS), most of the existing FDI into Latvia is  what he calls the horizontal type.

This means 'multi-plant foreign enterprises seeking to reproduce another plant for the Latvian market.' Examples are financial services, telecoms, retailing and hotels.

This kind of investment differs greatly - and shows a commitment to the growth potential of a country - to what Mr Vanags calls 'vertical' investment.

This is simply where companies have invested in the cheapest production centre. In the long term this kind of investment is not sustainable because as a country develops and becomes more affluent, somewhere else will always prove to be cheaper.

Horizontal investment tells us that Latvia's economy has a future. That it is developing, rather than simply competing as a super-cheap production centre.

Foreign investment

For long-term growth of property prices, this is essential.

The Latvian government appears to be determined to do all it can to create an economic environment designed to draw in foreign investors.

Two characteristics stand out in the property market:

• Individual investors declare rent as ordinary income and are taxed accordingly at the standard rate of 25%. Loan interest and improvements are both tax deductible.
• There is no capital gains tax for private investors if they hold on to property for more than one year.

And even before EU membership, Latvia's government pretty much did away with restrictions on foreigners owning property.

The only restriction now (and one that will continue despite EU membership), is that foreigners wanting to own land must be approved by the government.

Earnings rocketing

Add this benign investment climate to Latvia's economic performance in 2003, which was nothing short of stupendous.

GDP rocketed by 7.2% in 2003, which was up from a highly respectable 6.1% in 2002. Inflation grew 2.9% in 2003. In 2004 annual GDP is predicted to grow by 6.1%.

So, what effect has this had on property prices?

Property prices up

In the centre of Riga, the capital, prices grew around 20% last year.

The average price for unrenovated apartments is now around 900 euros per sq metre.  For renovated flats, the price averages 1,200 euros per sq metre.

Prices of Soviet-era flats in the suburbs of Riga show no growth at all after rocketing by 35% in 2002.  The decline in these properties' popularity is almost entirely due to the influence of the supply of new-builds in the capital.

New units in the suburbs of the capital now sell for around 600 euros per sq metre.

New units tend to be sold as shells, without flooring , baths or kitchen units or appliances.

According to Ober-Haus estate agency, such extras can add a further 150 - 200 euros per sq metre to prices.

Further growth predicted

For 2004, further price growth of 25% for smart Riga apartments is widely predicted, largely due to the rapid growth of the country's GDP and wages as well as a rapidly expanding domestic mortgage market.

Key developments in Riga this year include:

• Pulkveza Nams - a 150-apartment, renovated city-centre development O Ozolseta a seven-story development of 60 units in the highly desirable Teika area of area of the city
• In the Darzceims suburb, a 64-flat development

One of the essential elements fuelling the property market in Latvia is the relatively cheap cost of borrowing.  US dollar loans start at an historic low 4.5% fixed rate.  Loans can be for up to 40 years, with a loan-to-value ratio of 80%.

Scope for increased borrowings

Despite the increase in mortgage lending, however, there is still plenty of scope for expansion and the amount of mortgage money outstanding amounts only to 4% of the country's GDP.  This compares to the EU average of 48%.   In the UK, the figure is 65% of GDP; in Italy, just 10%.

According to Ober-Haus, the rental market can be divided into three. Old Town at 10-12 euros per sq metre, per month, the 'Quiet Area' for 10-13 euros and the City Centre from 6 - 8 euros psm monthly.

The most sought-after apartments are in renovated pre-war buildings.

As with all emerging capitals, new and newly renovated apartments will continue the trend of reducing yields in the expat rental market.

The strongest demand is currently for one and two-bedroomed apartments of around 75 sq metres, which command monthly rents of up to 1,000 euros.

Yield very respectable

Average rental yields in Riga are between 8-9%, according to Ober-Haus.

When you buy property in Latvia, you pay a 2% property title transfer charge.  A notary - needed to complete the transfer of property - will charge a flat fee of around 400 euros.

You will also probably need to pay a percentage fee to the estate agent you buy the property through. This commission - probably around 5% - is paid by both buyer and seller.