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Real estate deals include a number of financial transactions, questions and considerations. In general, these can be divided into three major categories: initial financing (usually via mortgage), taxes and fees, and insurance.
Financing and mortgage
No matter what your plans for Latvian property are, the first question you are likely to encounter is the issue of financing the whole enterprise. The two primary choices are either investing your personal funds or applying for a mortgage. As of 2018, there are 11 major Latvian banks that offer mortgage services. While each is different, the average interest rates are around 2%, which makes mortgage available for the majority of individuals, and especially legal persons. There is also a number of non-bank credit institutions, which may satisfy your needs for a proeprty loan.
When choosing a particular credit institution, it is advisable to study the composition of each interest rate. It usually consists of a fixed and flexible parts, where the flexible part is tied to the international economic development. This is the main factor that defines the risks you take with a particular bank. Another essential parameter is the overdue payment fine. While it is best not to overdue, of course, sometimes it is unavoidable, and the best safeguard would be calculating the possible fines beforehand.
As any transactions, Latvian real estate deals involve a number of taxes and fees to be considered. These can be roughly divided into two parts: transaction costs and maintenance costs.
- transaction costs
- capital gains tax
- notary fee
- stamp duty
- maintenance costs
- real estate tax
The notary fee and stamp duty can be considered minor costs that are paid for the particular service on the spot, and do not incur any significant expenses. The capital gains tax, on the contrary, is something to be considered beforehand. In general, it must be paid on any income arising from the transfer of the ownership rights of a property. There is also a number of cases when the tax is not paid, e.g. when the property in question has been used as a primary residence for at least 12 month and has been owned by the same resident for at least 5 years. As the definition suggests, the tax is paid by the seller or the lessor (the one who rent out) of the piece of real estate, and not by the buyer or the tenant.
As for maintenance taxes, in Latvia there is only one to be considered - the real estate tax. It is applicable both for real estate and land, which is why some sources also call it the ‘real property tax’ or just simply ‘property tax’. While it is a single tax, it has a number of brackets and divisions that determine the real tax rate. This is why each property should be considered as a unique case when calculating the real estate tax. As of 2018, the minimum tax rate is 0.2%, and the maximum rate is 1.5% of the cadastral value of a property.
Insuring your property is one of the more flexible choices - whereas taxes and fees are obligatory, insuring or not insuring a real estate is up to you. This applies to most of the cases, but it should be noted that, if you apply for a mortgage, some banks may demand that the real estate is insured. In 2017, about 35% of all of the mortgaged properties have been insured.
The property insurance market is one of the largest segments within the Latvian economy, and an abundance of competition ensures affordable prices. Ugis Ushkans (Uģis Uškāns) - a property insurance expert from BALTA, one of the biggest insurance groups in Latvia - notes that an average insurance rate for a modest apartament is 50 EUR/year, while for a private home it is about 100 EUR/year. Another important and somewhat unique aspect is that insurance costs are mostly independent from the location of a property. This is contrary to the general real estate trading maxim of ‘location, location, location’, meaning that location is possibly the single most important parameter of determining the price of a property. These two factors are why it is useful to insure your real estate no matter what kind of property it is.