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No prospect of a recovery in the hard hit Latvia property market before 2010

Latvia, once a favourite of property investors looking to buy in emerging markets, has suffered a devastating housing meltdown and there is no prospect of recovery before 2010, according Aija Klauza of Ober-Haus, the largest real estate agency in the Baltic and central Europe.

'The market has stopped at the moment. Practically nobody is able to buy anything. Generally we are seeing no new projects in Riga,' Klauza said.

'Development of new projects practically stopped in 2008. A lot of new apartments have not been sold, and one reason is that prices are too high. The prices will be falling but there is no reason to expect any positive change before 2010,' she added.

Economic uncertainty along with high unemployment rates have made property investors increasingly wary, with many now focusing on minimizing losses rather than expansion.

Market uncertainty and lack of confidence has meant that many ordinary Latvians are choosing to rent rather than buy property, driving down demand further.

The property market in Latvia was once among the strongest in Europe, with prices more than doubling from 2004 to 2006. As demand continued to outstrip supply, investors were keen to exploit high rental returns and ordinary Latvians readily borrowed unaffordable loans of up to 10 times their salary.

By January 2007, a third of those who had purchased property through credit were unable to meet monthly installments. Inflation rose and the government raised taxes and cut spending, while several banks implemented more conservative lending policies.

The downturn is also affecting the rental sector and prices have plummeted by 30%, according to some experts. Latvia-based property owner Juris Naruns said landlords were being forced to lower rents for struggling tenants.

He predicted that 2009 will bring a spike in bankruptcies along with a sharp decline in occupancy rates as businesses struggle to survive in the tough economic climate.

'The simple fact is that no matter how low you lower rents, some are just not going to make it. It is going to get much worse. The worst part about this freefall is that we just don't know when we are going to see some sort of base to start rebuilding. It's a pretty frightening position,' he said.