The Residential Property Market in Lithuania – An overview

General Economic Outlook for Lithuania

The year 2018 was quite successful for the Lithuanian economy – gross domestic product (GDP) increased by 3,5%. Although export growth slowed down, domestic demand grew faster, with both household consumption and investments picking up.

Continued tensions in international trade (the US and China), high uncertainty about further policy measures (Brexit, etc.), and reduced market confidence lead to lower global economic development. Over the next two years, the world’s major economies are expected to grow at a slower pace, but the likelihood of recession remains relatively low.

Although 2019-2020 the world economy should avoid major shocks, its growth will slow down. The impact of this slowdown will inevitably be felt by the Lithuanian economy. According to the Bank of Lithuania forecasts, economic growth in Lithuania will slow down to 3,2% in 2019 and to 2,5% in the next year.

The unemployment rate, which stood at 6,1% in 2018, should drop to 5,8% in 2019 and to 5,7% in 2020.

The slowing economy will naturally lead to slower wage growth. Wage growth in 2019 should decrease to 8,1%, and to 6,7% in 2020.

The inflation rate, which was 2,5% in 2018, should be 2,4% in 2019 and 2,3% the next year

If slowing of economic growth does not negatively affect the expectations of the population, the Lithuanian residential market should remain quite active, supported by rising wages, decreasing unemployment and high affordability of housing.

The Lithuanian Residential Market

The beginning of 2019 was characterized by exuberant activity in the Lithuanian residential market.

It is clear that the market is accelerating, and while the upcoming summer may slow down the sales, it is likely that the market will remain viable throughout the year.

Major developers have announced new projects or new stages of their projects. New developers are also coming to the residential sector, most of them with a lot of experience in other real estate sectors.

 

Vilnius

Supply

The supply of new apartments in Vilnius has been growing constantly, which is reflected by the increase of construction permits issued during the last several years. The number of construction permits in Vilnius city reached 81 in 2018 – a 45% increase from 2017.

The number of apartments permitted by the construction permits has been growing steadily. The peak was reached in 2018 with 6.010 apartments permitted for construction in Vilnius city, which was 16% higher than the previous year.

On the other hand, the number of new apartments that started construction skyrocketed in Vilnius city during 2018 and reached 7.010 units, which was an increase of 232% over 2017.

The increase of construction numbers was also reflected in the supply side during 2019, where nearly 2.000 new apartments were introduced to the Vilnius residential market by developers during the first five months – a 104% increase on the previous year.

The stock of available new apartments in Vilnius city stood at 4.767 units in May of 2019, which is an increase of 11% when compared to May of 2018.

It appears that a significant increase of new apartment supply could be expected in Vilnius city in the near future.

Demand

A total of 11.200 apartments was sold in Vilnius city during 2018, which was an increase of 7% from 2017 and even surpassed 2007 when 10.900 apartments were sold. Sales numbers also increased by 5 % during the first five months of 2019, when compared to the same period last year, and reached 4.685 units in total.

Sales of new apartments in Vilnius didn’t change significantly during 2018 and were at 3.865 units. However, the first five months of 2019 saw more than a double increase of new apartment sales, when compared to the same period last year, and reached 2.512 units.

It is worth noting that, while the share of new apartments in total sales didn’t change significantly from 2017 to 2018, in 2019 it more than doubled from the same period last year and reached 54%.

Prices

The average price of all sold apartments in Vilnius city reached 1.542 EUR/m2 in May of 2019.

At the same time, the average price of new apartments in Vilnius was 2.172 EUR/m2.

The sales price of new economy class apartments was 1.485 EUR/m2 and grew by 6,2% over the year. The price of a middle-class apartment was 1.966 EUR/m2 and grew by 4,4% over the year. The average price of prestigious apartments in the primary capital market was 2.993 EUR/m2 and basically didn’t change in a year.

The average price change of all sold apartments in Vilnius city in 2019 was approx. 4,7% when compared to the previous year.

Kaunas

Supply

The supply of new apartments in Kaunas residential market retained approx. the same level recently – construction permits issued for construction of apartment buildings didn’t fluctuate much. The number of construction permits in Kaunas city was 26 in 2018 – a 16% decrease from 2017.

The number of apartments permitted by the construction permits reached a peak in 2017 with 1.191 apartments permitted for construction in Kaunas city. However, this number declined by 21% in 2018.

On the other hand, the number of new apartments that started construction was steadily growing in Kaunas city and reached 828 units in 2018, which was an increase of 18% from 2017.

The moderate increase in construction numbers was significantly overshadowed by the supply of 2019, where nearly 425 new apartments were introduced to Kaunas residential market by developers during the first five months – an 82% increase when compared to the same period the previous year.

The stock of available new apartments in Kaunas city was at 934 units in May of 2019, which is an increase of 25% when compared to May of 2018.

Demand

In total 4.900 apartments were sold in Kaunas city during 2018, which was an increase of 5% from 2017 and was basically the same as in 2007. Sales numbers also increased by 6 % during the five months of 2019, when compared to the same period last year, and reached 1.956 units in total.

Sales of new apartments in Kaunas increased by 22% during 2018 and were at 520 units. Five months of 2019 also saw an 84% increase in new apartment sales, when compared to the same period last year, and reached 334 units.

The share of new apartments in total sales didn’t change significantly from 2017 to 2018, while in 2019 it slightly increased from the same period last year and reached 17%.

Prices

The average price of all sold apartments in Kaunas city reached 1.102 EUR/m2 in May of 2019.

At the same time, the average price of new apartments in Kaunas was 1.386 EUR/m2.

The sales price of new economy class apartments was 1.122 EUR/m2 and decreased by 2,3% over the year. The price of a middle-class apartment was 1.592 EUR/m2 and decreased by 2,2% over the year. The average price of prestigious apartments in the primary market was 2.220 EUR/m2 and grew by 10% in a year.

Average price change of all sold apartments in Kaunas city in 2019 was approx. 5,7% when compared to the previous year.

Klaipeda

Supply

The supply of new apartments in the Klaipeda residential market was not consistent – construction permits issued for construction of apartment buildings fluctuated during the last five years. The number of construction permits in Klaipeda city was 6 in 2018 – a 50% decrease from 2017.

The number of apartments permitted by the construction permits reached a peak in 2017 with 280 apartments permitted for construction in Klaipeda city. However, this number declined by 9% in 2018.

The number of new apartments that started construction waved in Klaipeda city but eventually reached 345 units in 2018, which was more than triple compared to 2017.

The increase of construction numbers was also reflected in supply of 2019, where 147 new apartments were introduced to Klaipeda residential market by developers during the first five months – a 40% increase when compared to the same period the previous year.

The stock of available new apartments in Klaipeda city was at 633 units in May of 2019, which is a decrease of 6% when compared to May of 2018.

Due to growing new construction, the total supply of new apartments in Klaipeda city should grow during 2019.

Demand

In total 3.000 apartments were sold in Klaipeda city during 2018, which was a decrease of 4% from 2017. However, sales numbers also increased by 8 % during five months of 2019, when compared to the same period last year, and reached 1.311 units in total.

Sales of new apartments in Klaipeda decreased by 3% during 2018 and were at 310 units. Five months of 2019 also saw a 78% increase of new apartment sales, when compared to the same period last year, and reached 167 units.

The share of new apartments in total sales was the same from 2017 to 2018, while in 2019 it slightly increased from the same period last year and reached 13%.

Prices

The average price of all sold apartments in Klaipeda city reached 1.089 EUR/m2 in May of 2019.

At the same time the average price of new apartments in Klaipeda was 1.360 EUR/m2.

The sales price of new economy class apartments was 1.151 EUR/m2 and remained the same over the year. The price of a middle-class apartment was 1.515 EUR/m2 and increased by 7% over the year. The average price of prestigious apartments in the primary market was 2.305 EUR/m2 and decreased by 4,4%in a year.

Average price change of all sold apartments in Klaipeda city in 2019 was approx. 3,4% when compared to the previous year.

REAL ESTATE FINANCING

Companies operating in the real estate sector came to the “ceiling” of their loan volume. According to a survey conducted by the Bank of Lithuania, most small companies that tried to take a loan this year claim that the loans were not provided.

For real estate companies, fewer credits could have been issued due to the fact that banks are saturated with such loans – their share in the total loan portfolio came close to the internal tolerance limit. According to the European Banking Authority, by the end of last year, EU bank loan limits for real estate businesses amounted to about 27 % of total bank lending to business customers. Similar diversification is being pursued in Lithuania – real estate companies should not expect banks to lend to them more than 25 – 30 % of their portfolios. And currently the market has already reached such “ceiling”.

Although the real estate market remains active, it is somewhat more difficult for companies to obtain loans for real estate projects – banks are putting in greater safeguards to insure against the actions of inexperienced developers.

Due to this difficulty in securing loans, businesses are starting to look for alternatives to bank loans.

The loan portfolio of credit unions grew almost three times faster than bank credits in 2018. Credit unions are mostly lending of small businesses.

But banks and credit unions are not the only source of finance for businesses. Funding can be sought in the financial markets by issuing bonds. There is also a tendency for smaller-scale projects to use peer-to-peer (P2P) and other financial instruments.

Recently, property-backed P2P lending platforms gained significant popularity in Lithuania. In 2017 – 2018, around 15 million EUR have been attracted to real estate projects through P2P platforms. P2P funding is provided by local companies Rontgen, Nordstreet, Profitus and a Pan-European company EstateGuru, which is a prominent leader in this sector in Lithuania. As banks continue to tighten their requirements for real estate projects, P2P platforms are becoming an increasingly attractive financing alternative to real estate developers.