The shopping craze: almost half of the apartments in Vilnius are already being stolen from business drawings

Raimondas Reginis, Head of Market Research at Ober-Haus, a real estate services company in the Baltic countries, 15 minutes He said that before the current pandemic, it was common that at the beginning of the construction of apartment buildings, which generally coincided with the beginning of the public sale of apartments, between 5 and 20 percent had already been agreed. sale of apartments. However, due to the strong increase in activity in the housing market this year, we already have completely different examples, which we can say, we have not had in the last decade.

“Some developers with public sale are already starting at the zero construction stage of the project, when there is not even a building permit or the construction of the building has not really started. We see that even 50-70 percent declare themselves publicly. realization of apartments, ”he said.

According to R. Reginis, there is a small apartment building in Vilnius, where the foundation of the building is currently being laid, and all the apartments are already sold. There are also more apartment buildings where construction has recently started and a large proportion of apartments have already been sold or reserved.

“Of course, not all projects are as successful, especially when it comes to larger projects. Renowned developers can often boast of that pre-sale pace, whose experience and reputation with buyers seem to ensure that construction work is done. they will be completed on time and that other contractual obligations will be fulfilled, ”he said.

Some developers with public sales are already starting at the zero construction stage of the project, when there is not even a building permit or the construction of the building has not started.

According to R. Reginis, such a situation on the market is unusual. In previous years, Ober-Haus recorded such sales volumes only at the end of the project’s construction.

“For example, in 2019, at the end of the construction of a multi-apartment project (stage) in Vilnius, an average of 74 percent was achieved. apartments, in 2020 – 71 percent. apartments. And in the projects completed in the first quarter of this year, the average sales rate is already 91%, ”he explained.

The situation is not credible

According to R. Reginis, the current situation in the housing market does not inspire confidence in the developers themselves. Now buyers and sellers are faced with an instant supply shortage and when the number of vacant apartments is rapidly decreasing each month. As a result, buyers have fewer options, home prices rise rapidly, and they are under a kind of pressure to make a home buying decision.

“So it is not surprising that we see such a rapid pace of home sales on projects that have not yet started construction. At the same time, the buyer has less time to delve into the terms of the home purchase agreement, negotiate them or compare them with other options on the market and similar ”, he assured.

Developers, in turn, have to make long-term commitments to their clients due to this situation and are facing or will continue to face the challenge of rapidly rising construction prices. For example, developers agreed with buyers on prices for homes to be purchased in 2020, and construction will be needed this year and possibly next, and already at a much higher cost than planned in 2020.

“Therefore, such a situation can be extremely unfavorable for some developers who were too optimistic about construction costs. Higher construction costs have a direct impact on the profitability of the project under development and there may even be situations in which the developer tries to save at the expense of the quality of the project, ”he explained.

The focus is on the framework contract

R. Reginis believes that some builders may even try to adjust the price of the home for sale already agreed with the buyer. If the oral or written reservation of the house purchased is usually valid for a short period of time (until the preliminary contract is signed), then the buyers’ primary attention should be paid to the preliminary contract for the purchase and sale of the house.

“A framework agreement is an agreement between the parties, according to which the parties agree to enter into another main (notarial) contract in the future under the conditions discussed there. The framework contract is especially important for the acquisition of real estate that has not yet been completed or for the purchase of the property that will be financed by the loan. When the object is completely finished or when the buyer has a bank credit agreement, a notarial contract is signed, ”he said.

The expert pointed out that it is in the preliminary agreement that the consequences for both parties should be specified if the main (notarial) agreement is rejected. For example, the contracts offered by some developers specify the penalties that both parties must pay for refusing to enter into the main sales contract (for example, an advance penalty), while the contracts of other sellers do not clearly specify the fines and their amounts. .

There may be cases where the developer refuses to enter into a final sale contract, the buyer will recover only the advance paid.

“Therefore, there may be cases where the developer, for one reason or another, refuses to enter into a final sale contract or tries to replace it with a new one, the buyer will only get back the advance paid and the buyer may have to try to recoup “losses.” Suppose that the period between signing the preliminary and final contract saw a significant increase in home prices, and the buyer’s legitimate expectations of buying that home, at a previously agreed sale price, were not met. And in the environment of a rapid increase in house prices, the advance reimbursed to the buyer is very little comfort, “he is convinced.

However, R. Reginis does not believe that developers who appreciate their reputation will choose to unilaterally ignore the terms of the contract signed with the buyers. However, the trendy real estate market attracts not only big-name professional developers, but also one-day builders, whose approach to the client-seller relationship can differ drastically.

“After all, if you don’t have a well-earned reputation, you can’t lose it by treating a customer dishonestly. Therefore, with such high sales volumes of homes under construction in Lithuania, rapidly increasing both construction costs and the sale prices of homes, in the future it will be possible to hear various stories about non-compliance with construction deadlines, the quality of projects under construction, attempts to increase the sale prices of previously agreed real estate or simply no contract of buy and sell.

Due to the rapidly changing situation in the Lithuanian real estate market in recent years, it has become unbalanced and the probability of hearing negative experiences from buyers or sellers in said market is growing proportionally ”, he is convinced.

The situation is reminiscent of 2009

15 minutes The developers interviewed agree that the situation does not really inspire confidence. According to Julius Davidonis, CEO of property developer Realco, it is not clear in the first place how the situation will turn out when it comes time to sign notarial contracts with buyers.

“A significant number of buyers sign preliminary purchase and sale agreements considering the current outlook and financial opportunities, which may change in the long term.” This situation reminds me a bit of 2009, when we fulfilled our obligations, but the contract was terminated. by buyers due to the change in the economic situation, “he said.

In addition, J.Davidonis points out that there are almost no vacancies in housing projects that are in the last stage of construction or are completely finished.

“We estimate that no more than a tenth of those homes are on the market today, so buyers who for one reason or another do not want to buy a house from blueprints have very few options,” he said.

We have to raise the prices

Martynas Žibūda, Development Director of the real estate development company Eika 15 minutes He said the company’s strategy is to sell at the rate of construction and sell about 90 percent by the end of the year. in apartment building under construction.

“When you see that the speed of sales is 4 times higher than what you expected or predicted, it is natural not only to talk about us, but about the market in general where prices are rising. The relationship between supply and demand is unbalanced, “he said.

In addition, it notes that competition between buyers has increased significantly. Even before the pandemic, it was necessary to quickly decide on the desired home purchase, because others were watching it, one could even come across your “competitors” on inspections. According to M.Žibūda, this situation has worsened.

“Buyers push each other, and this is the snowball effect. Many people complain because there was still yesterday and today that apartment no longer exists because it happened. This was not the case before the pandemic, now I really feel the pressure.

Unfortunately, there is now a seller’s market. I say ‘sadly’ because it’s kinky and unhealthy to us. I don’t like those distortions when I have to raise prices and beat interest every week because I understand that I will sell the entire building normally without even speeding up with construction. You could be happy to have all the buyers, but when you see how expensive the construction is, the cost and you don’t want to have pliers, ”he said. 15 minutes assured the interlocutor.

Unfortunately, there is now a seller’s market. I say ‘sadly’ because it’s kinky and unhealthy to us.

There are developers who are building an apartment building and only then start selling in it, thus believing that the market will grow in the future. However, according to M.Žibūda, the company he represents does not believe that such a situation always exists and therefore wants to keep sales volumes uniform.

“Our principle is to sell in parallel with the construction process,” he assured.

Objective reasons

Dalia Andrulionienė, director of the real estate development company Omberg, said that before the pandemic, the proportion of houses reserved from drawings in the project was around 20-30%. Recent months have seen an intensification of this trend: more than half of the homes in the company’s projects are reserved from drawings.

However, it considers that such sales are based on rational reasons. One of them is that the company is not new to the market.

“Another reason is that there is currently a boom in demand in the residential real estate market, which is reflected both in bookings for plans and in homes already built. As a result, clients rush to book apartments as soon as possible, since they can protect themselves from possible price increases in the future and have the opportunity to choose the accommodation that they like the most from the entire range of the project, ”she is convinced.