By Shanaz Musafer
Business reporter, BBC News, Riga
Ilze Latisenoka's dream apartment soon turned into a financial nightmare
Ilze Latisenoka gazes around her top-floor apartment with a sad smile on her face, wondering what might have been.
As the sun streams in through the large skylights in the sloping roof, it is easy to see why she fell in love with the flat.
But things did not work out the way she planned.
She bought the apartment for 280,000 euros in July 2007 with the aid of a huge bank loan.
She realises now that she made a mistake in buying at the top of the market. "I lost my common sense in that period," she says.
"I was not thinking about the money. It was really a lot of money, I now understand, but in that moment, the money didn't matter. Only the flat mattered."
It soon became apparent that she was going to struggle with the loan repayments. So instead of moving into her dream flat herself, she rented it out.
At the same time, Latvia's housing market collapsed in spectacular fashion. Prices have fallen by more than two-thirds in just under three years, well and truly bursting the bubble.
Now Ilze's apartment is worth less than half of what she bought it for and the rent she receives does not even cover half of the loan repayments.
She blames herself, but is also angry at the banks who made credit so easily available. "They had analysts and economists in their staff. They should more carefully analyse the situation and the people to whom they are giving the loans."
Latvia has no bankruptcy process that would let Ilze walk away from the loan. Now out of work and expecting her first child, she is worried about the future.
"All the money I have got goes towards paying the loan. I live for the loan," she says.
Economists say Latvia's property bubble is at the heart of its troubles
"Even the social benefits I get I have to give away to pay the loan."
Ilze's is a familiar story, echoed around the country.
Vyacheslav Dombrovsky, assistant professor at the Stockholm school of economics, says that Latvia's property market was more over-inflated than those elsewhere.
"The bubble was so huge. There was so much money pouring in," he explains. "People borrowed a lot of money to buy a lot of real estate - 2006, 2007 were crazy years.
"For much of the developed world, the main reason for the economic crisis was the perils of the US financial system," he goes on.
"The crisis in the UK, for instance - 80% of it is down to what's happened in the US, 20% was a home-grown real estate bubble. For Latvia, it is the other way round."
'Worst, worst case'
Viktors Savins is chairman of Arco Development, the biggest property developer in Latvia.
The past three years have been tough for him and the company. It has gone through a major restructuring, including having to cut about half of its workforce.
"It turned out to be the worst worst-case scenario that we could expect," he says. "But still we managed to survive."
He proudly shows us around the site of an apartment block complex. This is a rare sight in Latvia, construction actually under way, he says.
But things are not as rosy as they may seem. The entire project will not be completed until 2015 - five years behind schedule.
And the flats will be sold at a loss, though the company would make a bigger loss if it just stopped working on them altogether.
Latvia's Prime Minister Valdis Dombrovskis, who took office in March 2009, blames the previous coalition government of Ivars Godmanis for allowing such a big property bubble to develop.
The last few years have just been about survival for property developers
"Real estate speculations were not taxed, which was adding to the problem," he says. "So there were all too many policy mistakes."
But he hopes lessons have been learned. "I think this was a very painful lesson which will be remembered for a while."
Not everyone is so sure, though. Property developer Viktors Savins fears that the cycle of boom and bust may well be repeated.
"When people are getting optimistic and if good things in the market continue for a few years, then they are even more optimistic.
"Then the bubble bursts and everybody goes completely the opposite - pessimistic. And it brings [the market] further down."
Whether or not another boom follows this bust, one thing is for sure. Many people like Ilze Latisenoka fear they will be living with the consequences of the "crazy years" of 2006-2007 for years to come.