An interesting article and probably correct about the bubble in Riga. However, if there is a crash in Riga or the economy suffers a shock this is bound to have an impact on the property prices in areas outside Riga. So if this is a real risk then investors are better off looking elsewhere. Contrast Latvia with Slovakia, which also has very high economic growth rate but without the same overheating consequences as Latvia. Huw

Huw, Would you care to expand on your perjorative analysis of the Latvian economy. What are the fundamental differences between the Baltic States and Slovakia that lead you to favour the latter?

The issues with the Latvian economy are set out in the article. I just have a natural disinclination to invest in a market where property prices have already grown hugely and are potentially unsustainable (as concluded in the article). The Slovak fundamentals are excellent with all the positives such as FDI, decreasing unemployment, low inflation, tiger economy growth rates and on course for joining the Euro in 2009. And a sustainable increase in property prices rather than explosive, unsustainable growth. All of these issues are covered on other threads, together with the potential issues on the rental market, if you're interested. Huw

Thanks Huw, I have read most of the comment. There is little current comparative economic analysis to be found on this forum - that is why I ask your opinion. Personally, I agree that counter-inflationary measures must be taken to cool Latvia's, and to a certain extent the other Baltic States' economies. Certainly inflation is a barrier to entering the common currency. Slovakia is better poised to enter the common currency but is this likely to benefit the property market? I contend that a soft landing in the Baltic States and later adoption of the euro will likely not make much difference to long term prospects. The fundamental question is where are these countries going - dynamic admin/ transit/ financial centres (Baltics) or dependent on the fickle and limited prospects of the manufacturing sector (Slovakia).

Hi Nic You do have a point but I'm not sure manufacturing is that fickle to be a risk in the medium term of moving. There is a reasonable amount of high tech going into Slovakia (eg Dell) and I think once Euro entry comes closer it will be easier for international companies to do business there and may choose Slovakia ahead of others in an even fight. Also, high tech companies connected with the manufacturing industries will migrate there. Joining the Euro will reduce interest rates which will also provide a fillip to the property market and maybe European banks will start to lend there improving the mortgage market. I tend to agree that joining the Euro isn't the be all and end all and there may well be a soft landing in Latvia but I think there are better prospects for growth from a lower base elsewhere. All opinion - only time will tell! Huw

Thanks Huw, It's useful to hear your take on things. Nic

Hi, I want to add a couple of comments here. The Latvian government has put in place inflation cooling measures which are being fast tracked through the necessary government legislative process, so that they can they implemented ASAP to bring inflation under control. Please take a look at this link for more information: http: / /www .fm .gov .lv /page .php?id=3316 Second, the main concern in Latvia is the unsustainable level of inflation as we know, and real estate speculation is one of the main culprits of this effect. However, beyond this we need to look at affordability and changes in the credit market. As the earlier article correctly stated, in secondary cities such as Liepaja and to some extent Ventspils and Daugavspils where property prices are in a more healthy relationship with(provable) local income there remains siginificant opportunity in the short term. This is partciclarly relevant with changes in the credit market, have led to mortgage providors now tightening their policies towards clients (reducing loan to value and allowing only provable income to be used in application). Br A

I have found this article and the comments make for very interesting reading. I have one unit due to complete in August and was just about to make a deposit on two more. All 3 are in Riga. I had thought long and hard before deciding to make the new purchases. After all,we have heard numerous warnings about this market overheating before and a correction has not happened.Recently PS seemed to have tempered their attitude to the possibility of this market being due a downturn. After all they do forecast a 25% growth rate for the market this year. Knight Frank also forecast that the Latvian economy is set set for "growth above the EU average in the medium term". The real question is if the measures put in place to cool the housing market will cause a slowing of the rate of growth - which is inevitable,and would be welcome - or if they cause a downturn in prices in the medium term. I would be interested to hear any comments,particularly from the PS team,on what you think is the likely scenario for the Latvian market. Also,what should the would be investor do now.Proceed with another purchase in Riga,look to the second tier cities or perhaps adopt a wait and see approach?