By Eric Jansson
Published by Financial Times, 8 June 2008
Akmens Tilts, Riga’s broad stone bridge, heaves a busy boulevard across the river Daugava into the heart of the Latvian capital. For morning commuters travelling by car, tram and bus, the crossing works as a gateway into the city. It lifts them up on the Daugava’s less-developed west bank and, having carried them over the water, sets them down among the gracious spires and bustling alleyways of the central area.
In the evening, the structure’s function shifts into reverse as the same commuters return to some of this Baltic hub’s best communities. Back on the west bank, traffic streams into vast parkland, where roads diverge en route to residential quarters of radically varied characters.
One way, a street leads into old neighbourhoods graced with attractive clapboard villas. Go another and one comes across pre-fabricated, Soviet-era mini-cities built of concrete slabs. Elsewhere there are newly built suburbs and even a few luxury high-rise apartments.
At this fork in the road, the quickest route to a quiet life – as Latvian townsfolk have traditionally known it – points toward Agenskalns. This district lies straight across the parkland, just five minutes’ drive from the city centre.
In recent years it has remained amazingly unchanged while immense demand for downtown properties has pushed real estate prices in the very centre of Riga toward improbable parity with major western European cities, triggering rampant renovation and development.
With an aesthetic that owes more to the early 20th century than the early 21st century, most of this mixed district of old houses and towering trees looks much as it did before the recent boom, now turned to slump. Trams rumble down leafy cobblestone streets and in the district’s centre, where streets converge, flower vendors, taxis and pedestrians jostle for room before the entrance of an old covered market.
Now in the wake of the boom, with property prices in the Baltic country down sharply from last year’s highs, the same factors that insulated the neighbourhood from change begin to look like assets.
“Agenskalns is not cool,” says Inguss Hofmanis, of estate agency Latio.
To many Latvian homeowners as well as foreign buyers, cool has meant new or flashy. Agenskalns is overwhelmingly old, and most properties found here lack the obvious allure of those in Riga’s historic centre, where medieval and art nouveau designs interweave gloriously.
Meanwhile to the developers who have rushed to meet the demand of such buyers, cool has meant big. The bigger the project, the bigger the return on investment. Here, Agenskalns also fell short during the boom. Narrow streets, small plots and complex ownership arrangements scared developers away. They found simpler opportunities elsewhere in Riga.
For developers who have attempted to work in Agenskalns, getting in has been difficult. Local factors have made the market hard to penetrate, says Karlis Streips, a prominent journalist and social commentator.
Latvia’s morally unyielding denationalisation programme, instituted after the country cast off Soviet occupation in 1991, restituted formerly private properties not just to original owners but, when original owners were deceased, to their families. Many of Agenskalns’ century-old homes passed to families who lacked the money to renovate.
“One might have expected them to sell but people from Agenskalns have a kind of independent community spirit. They want to stay,” says Streips.
That provincial feeling, available so close to the centre, is increasingly attractive to many frustrated house-hunters in a citywide market where demand still so far exceeds supply that prices soar even in crumbling, Soviet-built zones. Wealthy buyers continue to look elsewhere but first-time buyers see Agenskalns as a good place to start and, potentially, to stay.
“The district is lovely and calm but just a step away from the hurly-burly,” says Zane Sedlova, a 22-year-old university student who earlier this year bought a two-bedroom flat in the area.
Though her property is located in a 1960s-built apartment house – one of the more popular Soviet-built varieties – it stands in a characterful part of the neighbourhood, just steps away from one of Agenskalns’ distinctive landmarks, a water tower built in striking national romantic style.
For such young buyers, accommodating prices are as important as pleasant atmosphere. One year ago, just before Riga’s market turned, prices in the centre topped 3,574 lats (£4,000) per sq metre, and prices in Agenskalns still ranged from about 857 to 1,785 lats per sq metre. Most would-be first-time buyers considered the market impenetrable.
Now, Riga’s inelastic, high-end markets retain price values for the wealthy individuals who can afford to buy there, the credit crunch notwithstanding. By contrast, middle-class property prices are falling rapidly. Average property prices fell as much as four per cent in February alone, and other months have seen significant drops, as well, according to analyses published by Arco Real Estate.
In Agenskalns, residential space in an attractive, brick building erected before the second world war is now offered for less than 1,428 lats per sq metre, while historic wooden houses are about 350 lats per sq metre. The most expensive renovations usually cost about 500 lats per sq metes but the pay off can be substantial.
Serving Riga’s market of 1m people, existing stock comprises about 300,000 apartments, 60 per cent of which are Soviet-built. Many of these post-war dwellings are approaching or past their original intended periods of use, says Aleksandrs Kregers, Latvian marketing director for new developments at estate agency Ober-Haus. Some of them might become uninhabitable “in the next 10 years”, he adds.
Under these circumstances, demand is likely to rise dramatically. The same dynamic is already helping to fuel a fresh cycle of new building. Indeed, though Agenkalns’ proximity to the centre remains one of its defining advantages, developments on its outskirts have become a strong source of upward pressure on prices in the area.
The towers of Panorama Plaza, the country’s biggest single mixed-use development, have begun rising in outer Agenskalns. Builders last year finished work on the first of four planned blocks and a second is due for completion this summer, with the entire project by Turkish developer Misa Housing Industries, due to be in place by 2010.
From upper storeys of the first tower, which tops out at 24 floors, residents enjoy expansive views of predominantly low-rise Riga and, looking inland, to dense pine forests.
Demonstrating inelasticity at Riga’s high end, work continues at the site in spite of the slumping market. Evija Ansonska of Mediju Tilts, the developer’s marketing agent, says that price falls seen across most of the city during the past year have not touched Panorama Plaza, where the developer still asks 357,000 lats for a 22nd floor, two-bedroom penthouse of 157 sq metres.
“We have enough people with enough money to buy flats here. We look to the Russian market. One third of our buyers are Latvian, but another third are Russian, and another third are from the European Union,” she says.
This also is Agenskalns. But the 22nd floor penthouse is the fruit of Riga’s most recent growth spurt. Far below, the landscape of faded façades, green patches and tramlines looks like more fertile territory for the next one.