Life in the capital becomes a challenge: the economist warns – we will earn money

This year, the property market was very active in Lithuania. Head of the Luminor bank According to the economist Sigismund Maurice, in terms of rising house prices in the European Union, our country is certainly in the top three at least. It is recorded that since the beginning of the year, according to Inreal, the prices of new homes have grown on average about 20 percent, of all apartments in Lithuania, according to Ober-haus calculations, by more than 15 percent. (to July).

“This is due to the following reasons why the Lithuanian economy has not experienced any crises, people’s incomes are growing quite fast and recently we have seen that people’s positive expectations are building a lot.” Those who were waiting for the price corrections saw that they did not exist and the train seemed to be leaving, so a large number of buyers began to buy apartments in droves, trying to reach that moving train, and speculators joined them. We haven’t seen anything like this since 2006-2007. This market is hot and we see it in the statistics: the annual growth of house prices is 15%, and if we look at the advertising portals, we will see that the population has raised property prices by 19%, in Kaunas, more of 20%, in Palanga – 40%. These are the numbers and we haven’t seen them in 2006-2007. There is a growing threat that real estate price bubbles could burst, at least in certain segments, ”says the economist on Delfi Keturios sienos’s television program.

Another important reason that affects the activity of the real estate market is the bank interest rates. Marius Čiulada, the head of the Ober-haus Old Town office, recalls that borrowing is very cheap today, the bank’s interest margin is around 2%, which means that it is not useful to keep a deposit.

Rental prices also went up

Undoubtedly, activity and changes in the real estate market also affect the rental segment. – even 30 percent.

Economist Ž. According to Maurico, the key factors influencing rental prices are income growth and population growth in metropolitan areas, especially in Vilnius. This last factor affects the demand for rental apartments.

“The demand for housing has been high. In addition, the rental market is becoming clearer, we see that developers are also investing in rental housing, projects are being built in which the apartments will be for rent only. Rent is changing a lot, it is becoming more transparent and price growth is observing at a fairly rapid pace. The growth rates are perhaps even somewhat surprising as they are in the double digits. The fact that the rental market becoming more and more transparent means that prices are also rising, because taxes are being paid, the quality of housing is also increasing, and as the quality of housing is increasing, so are prices ”, explains the interlocutor.

M. Čiulada, head of the Ober-haus Old Town office, estimates that overall rents in Lithuania have risen in price by 2% in the first half of this year. The global annual average price increase is usually around 5%. True, according to the interlocutor, it should be taken into account that the rental price adjustments are influenced by seasonality.

“The pandemic is affecting the rental market, but the seasonality is more. Autumn has arrived and since mid-August the demand for rental apartments has increased dramatically, not only from students but also from company workers who have come here to work from other countries. And not only Vilnius is talked about, practically every city in Lithuania has its own target audience of tenants. There are foreign students and workers in Vilnius, especially from Belarus, we have many IT specialists. But in Vilnius, the influence of students is much less, because the market itself is larger and much more flexible. In Kaunas, for example, the influence of students in the rental market is much greater. In Kaunas, for example, even the first were implemented coexistence projects, not in Vilnius. Other Lithuanian cities, such as Šiauliai, have a strong transport sector, there are many Belarusian and Ukrainian workers who come for a while and leave quickly. This is where this type of housing appears, since old houses are transformed into hotels and beds are rented there, not even rooms ”, comments the interlocutor about the trends of the rental market in Lithuania.

The rental market responds more slowly to demand

Economist Ž. Mauricas points out that in the face of such demand, the supply of apartments for rent also affects rental prices. The lower it is, the higher prices homeowners can ask for. According to M. Čululada, the supply of apartments for rent responds more slowly to demand.

“The rental market is not one that reacts quickly and as soon as the demand grows strongly, the supply manages to react so quickly. This is reflected in the prices. If we drag on, we will see that the supply of rental housing is really growing, we register a few hundred new apartments each month and, it is no secret, dozens of them are bought for rent. Of course, they appear on the market in about half a year, but this shows that the number of rental homes is increasing, ”says M. Čiulada.

More people are buying to rent because Lithuanians invest their savings in real estate, especially when, as already mentioned, the conditions of the banks regarding the loan are so good.

“The income from the rental of the house is around 5 percent. On average. That is, if the money costs (bank interest margin – Delphi) 2%, the landlord has a significant difference in his pocket. Thus, tenants who rent a house simply because there is no money for the down payment or who often change houses and are not ready to buy a permanent, pay the owner that 5%, even though there is a bank offer for the 2% close. Seeing such differences, tenants may also want to become buyers, not tenants. That is why this purchase market is so active, because there are those who buy for investment and those who buy for themselves “, explains the interlocutor.

The Vilnius property market is worrying

Currently, in Vilnius, where the rental market is the largest, the most popular 1-2 bedroom apartments can be rented from 300 EUR for older-built housing, the best-equipped apartments can cost 450 EUR per month. When it comes to new construction, prices start at 450-500 Eur and more, depending on various factors: the area, the condition of the facility, etc. Economist Ž. Mauricas emphasizes that rental prices in the capital should not be surprising, because Vilnius, like many other EU capitals, is an expensive city.

“For example, according to EU calculations, the rental price for a two-room apartment in Vilnius is about 800 euros, a room – 600 euros, when the average salary in Vilnius is about 1100 euros. If the salary it is even lower, then you already need to get creative: look for smaller apartments, rent a dwelling coexistence major or similar projects. But such a trend is in all EU capitals, Vilnius prices have become practically the same as in Riga and Tallinn, similar to rental prices in Warsaw and Bratislava. And it is really a challenge to live in the capital if the income is low ”, emphasizes the economist.

Real estate buying and selling prices are not lagging behind either, housing is becoming increasingly difficult to afford throughout the Western world, Lithuania is no exception. Ž. Maurice emphasizes that historically in the west 90 square kilometers. m of housing had to be bitten by 5 years of salary savings. There are currently no such indicators in many EU capitals.

“You have to work in Vilnius for 12 years to buy a house. In Berlin, there will even be a referendum on whether to expropriate houses from companies that rent houses,” says the economist.

The interlocutor warns that the growth of both rental and purchase and sale prices of real estate in Vilnius must be stopped, otherwise we may face considerable difficulties.

“If we make money and do not increase house prices, we may lose that competitive advantage over other capitals. If house prices, rental prices will be too high, workers will choose other states. Furthermore, Lithuanian entrepreneurs, if it will be too expensive for their employees in Vilnius, they will establish their businesses in other cities, ”emphasizes Ž. Mauricas.

However, M. Čiulada is convinced that Vilnius is a large city with many attractive suburbs and that settlers do not necessarily have to look for housing in the place of residence as close as possible to the central part of the city.

“Vilnius is a big city, there are smaller suburbs around it, it is not necessary to live in the city center. After all, the city is expanding, there are still unused areas around Vilnius. Again, it is a question. of urban strategy, how the city will develop. Now the strategy is to condense the capital, there are conversions, etc., the city center is changing and to have efficient public transport it needs to be more dense. But we must not forget that we also have suburbs around us that are closer to nature, so the situation in Vilnius is definitely not that bad. We also have competing cities that will gladly accept settlers, “emphasizes the real estate expert.

How to stop the increase in rental rates?

Rental prices continue to rise, but this process could be slowed by an increase in the supply of rental housing. High hopes are placed on projects developed by real estate developers, where all apartments are for rent only. According to Maurico, such an increase in supply could halt price growth.

“As for the affordability of housing, the rise in prices across the western world was due to low bank interest rates. People tend to invest their money in housing by increasing its price. This decreases affordability accordingly. Historically, there were such rules that in the West 90 square meters m of housing had to be bitten by 5 years of salary savings. Currently, there are practically no such capitals in any EU capital. You have to work in Vilnius for 12 years to buy a house. In Berlin, there will even be a referendum on the expropriation of houses from companies that rent houses, “says the economist.

You can watch the entire conversation on the Four Walls show.