COUNTRY PROFILE

Despite the fact that the three Baltic States have short summers, long winters and an almost impenetrable language barrier, the three countries of Latvia, Lithuania and Estonia are topping the charts when it comes to economic and property market growth. Dynamic and well organised, these small countries have generated huge levels of interest, and experts predict that the market will continue to develop over the next ten to 20 years until prices are on a par with Western Europe.

Why the Baltic states?

Undoubtedly one of the biggest success stories of EU membership, the Baltic Tigers–so called because of the aggressive periods of economic expansion they’ve experienced since 2000–have seen astronomical growth over the last few years, and topped all the polls in price appreciation and popularity when it comes to buying overseas.

All are stable parliamentary democracies, while NATO membership and the pegging of their respective currencies to the euro has helped to perpetuate the prosperous economy upon which the stability of their property markets is based. In terms of economic growth rates, all three have been close to 10% for the last few years, making them the fastest-growing economies in Europe. In comparison, the average increase of the original EU members was a mere 1.6%.

This is no mean feat when you look back to the early 90s and see how the collapse of the Soviet rouble, and the consequent inflation and financial crisis of Russia in 1998 damaged the Baltics. What’s more, it was only in the early 1990s that Baltic nationals were entitled to buy their own property.

Today, inflation and interest rates are exceedingly low, which has encouraged the locals to get a foot on the property ladder, helping to stimulate price rises, which are destined to approach Western European levels within ten years. Estonia, Lithuania and Latvia are aiming to enter the euro zone at some point between 2008 and 2010, and this will further boost the popularity of the region with foreign investors and tourists.

Their collective property markets have topped the polls for price appreciation, with Estonia leading the charge at 54% for price increases in 2006. For the third quarter of 2006, estate agents Knight Frank reported that Latvia experienced growth of 39.2% and Lithuania 15.5%, putting all three countries in the top ten for worldwide house price growth in 2006.

Looking at all three countries in terms of tourism, up until 2004 very few UK tourists holidayed in the Baltic States. The three capitals of Rīga, Tallin and Vilnius remain the focal point for tourists and investors alike, with stag parties becoming increasingly popular. Consequently, all three capitals have been touted as the next Prague. Culturally, the Baltic States offer fine architecture, and all three capitals have been declared UNESCO World Heritage sites.

Economy and politics

Members of the EU and NATO since 2004, the Baltic States are Europe’s leading growth economies, with foreign direct investment hitting €806.9 million in Lithuania in 2005, €507.9 million in Latvia and €837.9 million in Estonia. Enjoying a period of sustained economic growth, which began in 2000, all three countries have undergone economic transformation, thanks to their implementation of economic reforms and liberalisation. This, coupled with their skilled labour force and fairly low wages, saw the beginning of mass foreign investment, which helped to propel the Baltic Tigers to the position of Europe’s economic leaders. It is predicted that this growth will continue at rates of between 5–10% until at least 2010, when they are expected to adopt the euro. The countries are also expected to experience a rise in GDP similar to that seen by Ireland during the 1990s. Despite the fact their GDP per capita is currently between 50–60% of the EU average, and unlikely to rival or match it in the near future, the fact that it has doubled since 1999, rising from 25% to 50% in eight years, is remarkable.

Lithuania

The keys to Lithuania’s continued strong economic growth have proved to be foreign direct investment, a strong exports market and EU structural funds. While Lithuania no longer enjoys the highest rate of economic growth in Europe, economically, the country has continued to perform well for the past few years and currently enjoys an annual growth of over 7%, and an inflation rate of 2.3%. GDP is expected to continue to grow at above 7% past 2007, with the country earmarked to receive €9 billion in EU structural funds between 2007–2013.

Politically, the country has seen very little change since its independence from the Soviet Union in 1991. Stability is the over-arching theme, which is great in terms of investment.

Lithuania is a parliamentary democracy and the Prime Minister is Gediminas Kirkilas.

Latvia

Suffering from inflation rates that hit 951% in 1992 and a 50% crash in GDP following the collapse of the Soviet Union, Latvia has clawed her way back and today is regarded as the rising star of European economies. In 2005 growth rates hit 8.5%, the highest of any EU country, with interest rates as low as 4.5%. It was accession to the EU that helped bolster the country’s flagging economy. Coupled with EU funding and foreign investment, in the third quarter of 2006, the economy of Latvia recorded the highest growth rate of the Baltic States. GDP hit 11.8% year on year, while Latvia currently tops the pay increase ladder with 11.1% projected rises in 2007. All this makes it a lucrative investment market, as current rates of inflation–6.5%–are predicted to decrease further, while economic growth continues to rise, currently standing at 10.2%. The key question being posed is whether the Baltic States can sustain such growth. In Latvia, things have been seen as getting slightly out of hand and accordingly, in order to slow growth, interest rates have been increased. Nevertheless, as the economic and property market growth are going hand in hand, Latvia remains a sustainable country in which to invest.

Latvia is a parliamentary democracy and the President is Vaira Vike-Freiberga.

Estonia

Enjoying the strongest economy per capita of all three Baltic States, despite enduring severe financial crises, Estonia managed to turn things around much quicker than her Baltic neighbours thanks to her close relationship with Finland, which was responsible for a large amount of foreign investment, and this helped get Estonia back on her feet.

The most affluent of the Baltic States, Estonia has the highest rate of mobile phone and computer ownership of the three. With GDP growth rates of 9.5% in 2006 and low rates of inflation–currently 4.1%–the economy has grown strongly and analysts predict that this growth will continue, making it a sound investment prospect for property buyers. Estonia is a parliamentary democracy and the Prime Minister is Andrus Ansip.

Annual GDP growth rate
	2000	2001	2002	2003	2004	2005	2006	2007 (e)	Annual GDP growth rate 2000 2001
Estonia	7.9%	7.7%	8.0%	7.1%	8.1%	10.5%	9.5%	8.0%	89.9%
Latvia	6.9%	8.0%	6.4%	7.5%	8.5%	10.2%	11.9%	9.0%	92.6%
Lithuania	4.1%	6.6%	6.9%	10.3%	7.3%	7.6%	7.4%	6.5%	72.8%
Data from International Monetary Fund. e= expected values

Geography and climate

While the Baltics are three of Eastern Europe’s smallest states, it is actually their small stature which has helped them undergo such rapid economic revival. It has been suggested that the Baltics share more in common with Northern Europe and while they are commonly grouped together, the Baltic people see the three countries as being very disparate–they regard the title of Baltic States as referring more to their geographical proximity than their cultural and historical similarities.

Bordering Russia and Belarus, and surrounded by the Baltic Sea to the west and Gulf of Finland to the north, Estonia is the smallest of the Baltic Tigers, covering 45,226km and with a 3,794km-long coastline, which is studded with over 1,500 islands. The most northerly of the three states, her close relationship with Finland is one bolstered by geographical convenience, as the two countries are only separated by the Gulf of Finland.

Latvia is sandwiched between Estonia and Lithuania, and has a smaller coastline of 531km. Covering an area of 64,589 square kilometres, it has a population of 2.3 million. Lithuania is the largest and most populous of the Baltic States, with a land area of 65,303 square kilometres, coastline of 90km and a population of 3.6 million people.

There’s more to these countries than their three striking capitals, and outside of these you’ll find vast forests, expansive wetlands which provide a habitat for many birds and animals, and extensive tracts of beaches. The countryside is peppered with rustic villages and isolated farmsteads, and the people of the Baltics have a close relationship with nature and the countryside–a countryside which explodes with greenery and colour during the spring.

Generally wet, with mild summers and dark, snowy winters, the climate in the Baltics can be incredibly unpredictable. The climate in Estonia is colder and wetter than her other Baltic counterparts due to her exposure to the Baltic Sea. Winters are dark–some days only see six hours of daylight–with the first snow coming in November and unlikely to let up until spring when the thaw sets in. December marks the start of winter in earnest, and during this period temperatures rarely top 0°C and regularly drop to–20°C; this continues right through until March.

The summer months of June until August are when the Baltics are at their best, enjoying many days of sunshine–although showers are equally common. Temperatures average around 20°C throughout this period. During spring, the climate is moist and the landscape lush and green, with many colourful flowers. Autumn is similarly beautiful, when the leaves begin to turn a golden brown.

History and culture

Despite following very different paths to reach their current independence, the history of the Baltic States is very similar. A story of foreign rule and subjugation of its peoples, having been controlled by the Soviet Union from 1940–1941 and then again from 1944/45 until 1991, all three finally gained independence with the collapse of the Soviet Union on August 21st 1991.

Having ruled their own country for only 30 years out of 800, Estonia’s history has been shaped by its neighbours, with the Danes, Germans, Swedish and Russians ruling in turn. The mid-nineteenth century saw Estonia undergo a cultural and linguistic revival, which was soon followed by the collapse of Germany and Tsarist Russia, and a fleeting moment of Estonian independence in 1918, which ended again in 1940. The people weren’t to savour self-rule again until the collapse of Soviet Russia in 1991 when independence was declared.

Latvia underwent a similar history of occupation and foreign rule. Germany, Sweden and Russia all took it in turn to rule the country. However, during the 1900s, the Latvians asserted their independence, fighting off the Russians and Germans and achieving self-rule following WWI. But, they too fell victim to Soviet annexation in 1940 and despite increased calls for self-government during the 1980s, it wasn’t until the Soviet collapse in 1991 that Latvia once again became an independent state.

Lithuania has seen more days of independence than her neighbours, existing as a unified state in the 14th century and a combined Polish-Lithuanian state in 1569. However, by the end of the 18th century, Lithuania had fallen under Russian control, which was never really shaken off–the end of WWII saw a brief flurry of independence–until Lithuania declared independence in 1990, almost a year earlier than its Baltic neighbours.

Far from being countries scarred by their communist past, the three Baltic capitals are in fact UNESCO World Heritage sites and boast some of Europe’s finest architecture. Lithuania is characterised by the pine forests and lakes of its national parks and the charm of its capital Vilnius, with its Baroque churches and cobbled streets, while Latvia, with its scenic countryside and southern farmlands, is famous for the art nouveau architecture of Rīga, whose old-town buildings also reflect the eight centuries of its varied occupation and history. Lithuania and Latvia share more in common with each other than Estonia, where the Finnish influence is evident in both the language and heritage. Its capital is a blend of medieval and modern and boasts a fine array of bars and restaurants. To the east, the coastline is rugged and rocky, while to the west, the coastal towns are popular resorts. Inland is rolling countryside, and everywhere are quaint villages, which attest to the cultural and religious diversity of the country. In both Latvia and Estonia, the once oppressive Russian influence remains evident, with Russian widely spoken and many immigrants from the former USSR living here.

Religion

79% of the Lithuanian population are Roman Catholic and only 1.9% Protestant. The Catholic Church has played an important part in the country’s development and many Catholic leaders were central to the anti-communist movement. 4.9% of the population belong to the Orthodox Church, mainly the minority Russian population.

The Latvian population is fairly equally divided between Lutheranism, Catholicism and Orthodoxy, the former representing the largest segment of the population with 24%, Catholicism 19% and Eastern Orthodoxy 15%.

Another 6–7% indicate affiliation to other religions, while 35% profess to follow no faith.

Estonia’s dominant religion is Evangelical Lutheranism, although at present less than a quarter of ethnic Estonians, 31%, define themselves as active believers. In a survey carried out in 2005, only 16% of Estonia’s stated they believed there was a god, making Estonians the least religious people in the EU.

Tourism and getting there

The property market in the Baltic States has certainly been bolstered by the introduction of budget flights following accession to the EU in 2004. 2006 saw a breakthrough in the Baltic market, with OAG (The Official Airline Guide, www.oag.com) reporting that the number of low-cost operations into and out of Estonia, Latvia and Lithuania has rocketed by 87% compared with July 2005, while Tallinn airport saw visitor figures rise by 40%. 2005 saw visitor numbers to Vilnius and Tallinn rise by 30%.

The World Tourism Organisation (WTO) reported recent growth in the tourism market of 20% for Latvia, 15% for Lithuania and 7% for Estonia. Such rapid growth is good news for those buying to let, although the main focal points are centred around Tallinn, Rīga and Vilnius.

By putting themselves on the tourist map and increasing awareness and interest in their tourist industry, all three countries will only help to secure their positions as burgeoning economic and property-market centres. The World Travel and Tourism Council has announced that Latvia has joined the top ten list for countries expected to see the biggest growth in tourism between 2007 and 2016.

The inevitable growth in budget flights has helped create and sustain the property market in all three countries–easyJet (www.easyjet.com) fly to Tallin and Rīga, and Ryanair (www.ryanair.com) to Rīga, as well as to Kaunas in Lithuania. Lithuanian Airlines (www.lal.lt) fly to Vilnius from throughout the UK.

Cost of living

According to the 2006 Mercer Cost of Living Survey (www. mercerhr.com), Vilnius is ranked 116th in a list of 144 cities (with 1st being the most expensive, and 144th being the cheapest), confirming that it’s highly affordable, with a cost of living index of 69.2, 100 being the most expensive ranking. Tallinn came 96th with 73.7 and Rīga 81st with 77.2; all three had dropped in their ranking within the survey, making them some of the cheapest European capitals to live in.

In Latvia, a meal for two costs £8 and a pint of beer £1.50. In Estonia a pint of beer costs £1.30, while in Lithuania a three-course meal for two will set you back £20.

Food and drink

Given the cold nature of the climate in these three countries, dishes tend to be fairly heavy and laden with calories and carbohydrates, with pork and potatoes the most popular fare. Be aware that coffee and tea will generally be served black and that outside of the capitals your choice of beverages will be mainly limited to beer and vodka.

Estonia

The average Estonian would like nothing better than to sit down to a meal of pork, salted herring and rye bread, all washed down by a glass of beer. Sauerkraut and potatoes are also popular choices, with beer and vodka the most popular alcoholic beverages. While vegetarians may not fare well among the meat-laden menus, western influences are having an increasing effect and lighter dishes and international cuisines are creeping into the capital.

Latvia

Dairy products feature highly on the menu in Latvia and while pork, beef, cheese, sour cream and baked potatoes play a key role in meals, salad dishes and lighter meats such as chicken are beginning to feature regularly on menus.

When eating out, Rīga provides the best array of restaurants, bars and cafés, and thanks to the tourist demand there has been a move away from the hearty Latvian fare to a more international feel.

In terms of beverages, Latvia is renowned for its sparkling wines, known as Rīgas sampanietis, although the most common drink remains beer–alus–while vodka is also popular. Rīga Black Balm is a must-try when in Latvia and this bitter tipple is based on a recipe two-and-a-half centuries old. It’s extremely fragrant, brewed with local grasses and herbs.

Lithuania

As with both Latvian and Estonian cooking, pork and potatoes are also staple ingredients in Lithuania dishes, with most food based on peasant recipes. Typical dishes include chops or roasted cutlets, and sausages or stews. Pizzerias and international restaurants are springing up throughout Vilnius and although vegetarians aren’t faced with a wide range of options, cheese and mushroom pancakes are an example of the type of food you can now expect to find.

The country is not known for its wines, but imported vintages are regularly available. Again, beer is the most popular tipple, with vodka also widely consumed.