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Real estate: pop goes the bubble?

For the first time in ten years real estate price in the Baltic states are falling. Is the bubble bursting? After reaching and even exceeding older European markets in relation to price levels and investment returns, the Baltic markets are experiencing a downswing due to many factors including; shrinking demand from a shrinking population, a rise in interest rates in line with European rates and financial institutions have introduced stricter lending criteria.

Gone are the days of applying for a mortgage and disclosing both your declared and undeclared income.

Real estate agent Arco says Latvian prices are down about 6 percent this year although the prices are still 30 percent up on the same time last year. The development is similar in Estonia, with prices down between 5 and 10 percent. In Lithuania, prices are still rising, though at a slower pace and more or less in line with inflation.

Despite the fall in prices construction is continuing and booming across the board with new developments popping up everywhere. According to Arco real estate figures the average price per m2 in the centre of Tallinn is 2,200 - 3,200 Euro, in Riga's center 2,500-2,800 Euro and in Vilnius 2300-3500 Euro.