Our relationship with our eastern European neighbours has gone through some ups and downs over the years, to put it mildly. In the communist days, as we sat glaring at each other across the Berlin Wall, we were convinced they were about to unleash nuclear Armageddon.

Less than two decades later, how different it all looks. These days, if we think of Poland, it is as a source of cheap plumbers, while Prague, the Czech capital, and Tallinn, its Estonian counterpart, are well established on the stag weekend circuit thanks to the cheap beer and opportunities to try out former Soviet weaponry. Poor old Kazakhstan’s image, meanwhile, has become inextricably linked with Borat, even though the faux-naive television presenter is a British invention whose exploits were filmed partially in a village in Romania.

So what of Latvia? You may have barely heard of the place, but over the past few years this country of 2.3m people, which is sandwiched between Estonia to the north and Lithuania to the south, has been quietly shaping up as one of the best places to make money on property in Europe — or indeed in the world.

The dynamism of the country’s property market has been confirmed by the latest instalment of estate agency Knight Frank’s global house-price index. Prices in Riga, the country’s splendid baroque capital, grew by 39.2% in the year to September, the agency found. Amazing — even if the rate has slowed from the same time last year when there was an even more staggering rise of 65.9%.

For buyers like David James, 35, a doctor from London, the result has been stellar profits. He was drawn to Latvia by the country’s blistering economic growth rate — which at more than 10% a year is not only the highest in the European Union, but close even to Chinese levels.

In July last year, he paid £55,000 for an off-plan, two-bedroom flat in the Zolitude district, about 15 minutes from the centre of Riga, through Someplace Else, an estate agency based in Fulham, southwest London. Eighteen months on, the flat has been finished and is rented out — bringing in enough to cover the 75% mortgage a Latvian bank was happy to grant him. Encouragingly, the bank has just valued the property at 35% more than he paid for it, reducing the amount of his own money that he has had to put in.

Heartened by his experience, James has since bought another pair of one-bed flats — for £91,000 and £100,000 respectively — about 10 minutes’ walk across the river from the city’s splendid Old Town. Once they are let, he intends to buy more. “It has proved an extremely good speculative option,” he says. “The growth rate there is explosive.” Before buying, he had never been to Latvia; he has since been there half a dozen times and is becoming understandably fond of the place.

So should you simply go out and follow James’s example — and expect similar profits to start rolling in — or be guided instead by the old line tagged on the end of adverts for financial services that past performance is not necessarily a sign of future returns? Liam Bailey, head of residential research at Knight Frank, counsels caution when using his table. “Remember this is historical data,” he says. “It is an interesting guide to what has happened, but it does not predict what will happen in the future.”

Before plunging in, Bailey says, buyers should look at a raft of factors, from political and economic risk to the strength of the rental market. Affordability is also as important a consideration abroad as it is in Britain: after all, if prices have already risen by so much, will local people be able to afford to buy your property from you when you want to cash in your profits? For that reason, it might be worth looking instead at neighbouring Lithuania, fourth in Knight Frank’s index, where property price inflation is still speeding up rather than slowing down — 15.5% in the 12 months to September, up from 14.4% a year earlier — or at Ireland or Norway, which lie in fifth and six places respectively.

Or for a more speculative punt, why not look at some of the laggards at the bottom of the table — such as Hong Kong, traditionally one of the world’s most volatile markets.

The former British colony ranked a lowly 31st (just behind Japan and ahead of Germany) in the latest survey, after prices there fell back 2.6%, largely as a result of several rises in interest rates. The previous year, it had been in fifth place after a 20.1% increase.

With the cost of borrowing falling again, though, there are signs the market there is picking up again. “It might well be that you will get a better return in Hong Kong over the next 12 months than you will in Riga,” says Bailey.

On the market

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