Real estate sector needs to take advantage of its potential by increasing private investments in the sector

The real estate sector, working together with the responsible ministries, needs to elaborate a common strategy for improving the competitiveness of the sector and attracting investment with the goal of significantly raising the amount of private investments in real estate by 2020. This is the joint solution that representatives of the sector and various government ministries arrived at in an open discussion organised by the Ministry of Economics and the National Real Estate Development Alliance (NNĪAA).

Through a constructive discussion, the participants agreed that the real estate sector is one of the most important areas of the Latvian economy, therefore needed changes must be elaborated as soon as possible. The participants highlighted the current challenges in attracting investments to real estate development, territorial planning and construction; they also analysed the existing regulation over the real estate and construction sectors.  
Mārtiņš Vanags, Chairman of the Board of NNĪAA, pointed out that, at the moment, private investments in new real estate in Latvia are falling – in 2014 investments amounted to EUR 366 million per year, whereas in 2015 they had fallen to EUR 343 million a year, and were EUR 361 million last year.
Arvils Ašeradens, Minister of Economics, agreed with the representatives of the sector that there is a need for change in order to take full advantage of the potential of the sector. “The real estate sector is generally an indicator of the overall economic situation revealing whether the national economy is growing or quite the opposite – standing still. The real estate sector in Latvia has constantly failed to show growth. Overall investments both in Riga and throughout Latvia are very low, and the sector is stagnating as a result of this. Therefore, changes are necessary in order for the sector to be able to attract investments. The Ministry of Economics is aiming to change certain factors and create conditions for private investments in the real estate sector to reach EUR 600 million per year by 2020,” the Minister of Economics said during the discussion.
The Minister also noted that the only way to promote the competitiveness of the sector and economic growth in general is for the government to work together with representatives of the sector in elaborating a common strategy, identifying which improvements can be effected by the government and which – by the sector itself. The Minister confirmed that the Ministry of Economics is committed to reaching an agreement with NNĪAA on eliminating the factors hindering investments in the sector and attaining an increase in investments by 2020.
According to Mārtiņš Vanags, there are several obstacles to the further development of the sector that must be removed through joint efforts. For example, in the 2017 Doing Business index Latvia has fallen by three places in regard to ease of obtaining construction permits, and this is only one factor hindering investments in the sector. In terms of obtaining construction permits, Latvia is significantly behind its closest neighbours – Estonia is 9th and Lithuania is 16th, while Latvia is only 23rd. As regards registering property, Latvia is lagging even farther behind with Estonia as 6th, Lithuania 2nd, but Latvia – again only 23rd. Vanags points out that these are issues that need to addressed already today.
“Various problems in project approval and over-bureaucratisation keep Riga from being able to compete for new developers and investments, thus losing out on tens of millions of euros in investments every year. The disproportionate burden on investing in real estate is also one of the main reasons keeping investors from investing in new projects in Riga.  The bureaucratic burden is also hindering investments. Latvia needs to eliminate these obstacles so that the sector can attract more investments,” Mārtiņš Vanags explains.
Latvia is lagging far behind Lithuania and Estonia also in regard to construction of private homes and apartment buildings. Last year twice as many apartments and private homes were built in Estonia, and Lithuania – six times more than Latvia. Due to these reasons, it is important to look at the regulation of the construction and real estate sectors as soon as possible, otherwise we will keep losing several millions in investments to our neighbours every year.
Edmunds Valantis, Deputy State Secretary at the Ministry of Economics, said in the discussion that work has already begun in collaboration with the sector on an action plan to eliminate factors hindering the development of the sector. One of the first steps is to reduce the project approval period to 78 days. There are also plans to make the process of submitting construction documents and settling related formalities more user-friendly. Additional solutions to improve the competitiveness of the sector are to be presented shortly.
The participants of the discussion were: Arvils Ašeradens, Deputy Prime Minister and Minister of Economics, Edmunds Valantis, Deputy State Secretary at the Ministry of Economics, Mārtiņš Vanags, Chairman of the Board of the National Real Estate Development Alliance, Jānis Iesalnieks, Parliamentary Secretary of the Ministry of Justice, Ingūna Urtāne, Director of the Spatial Planning Department at the Ministry of Environmental Protection and Regional Development, Andris Božē, Chair of the Construction Council of the Latvian Chamber of Commerce and Industry and Chairman of the Board at “YIT Celtniecība”, Ēriks Bergmanis, representative of “Colliers International”, and Ivars Pommers, representative of law firm “Ellex & Kļaviņš”.

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Zane Ieviņa
„P.R.A.E. Public Relations”
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