The apartment rental market is a revolution: the changes are important for both tenants and owners.

The coronavirus pandemic, quarantine, and border closures have stalled not only the global economy but also the property market. Lithuania was no exception, where in the first quarantine months (March, April) real estate developers shared sales statistics that fell sharply. It is true that the number of real estate objects currently for sale is gradually increasing. According to Ober-Haus, in June this year, the total balance of sales (difference between the number of recently concluded and terminated agreements) in the primary market for Vilnius apartment buildings, including apartments sold and reserved in apartments already built and under construction amounted to 258 apartments or 95%. more than in May 2020. Meanwhile, compared to April this year, 5.3 times more new apartments were sold in the capital. If we look at the sales of new floors in April (48 floors), May (132 floors) and June (258 floors) this year, it can be seen that after a sharp drop in activity in April, the return of buyers to the new Capital construction sector is already observed in the following months.

The property rental market has also changed.

According to Tomas Sovijus Kvainickas, Head of Investment and Analysis at Inreal, the supply of rental housing has now increased slightly and demand has decreased. According to the analyst, this change was caused by several reasons: pandemic and quarantine, which reduced the number of homeless people in the capital, but on the other hand, the supply of long-term rental housing in Vilnius generally increases every summer when the students leave the capital.

“Several students returned to their parents’ homes in the regions to continue their distance learning, some of the new employees lost their jobs and also left Vilnius. In addition, the disappearance of tourists has forced part of the short-term rental housing to “readjust” in the long-term rental segment, thus increasing supply in the central part of the city. It is also important that summer for long-term rental is a particularly ungrateful period when the rental market is less active due to seasonal fluctuations, “explains the interlocutor, adding that in the second quarter of 2020, rental prices in Vilnius they decreased by 5-10 percent and are likely to drop slightly more during the summer.

According to T. Kvainickas, due to the continuing pandemic in the world, when the need for short-term rental drops sharply, owners have three options: sell, rent for a longer period, continue short-term rental for bubble travelers travel or for self-isolation purposes.

“All three options apply, but the conversion of short-term rental housing to long-term rental or sale is not particularly significant in these markets. Especially since not all apartments equipped for short-term rental are suitable for the long-term rental segment. They tend to be in poorly equipped kitchens, san. therefore, it is not suitable for people who intend to live and not stay, “says the real estate analyst.

See the differences between short and long term rental housing

Due to the end of the school year, the extremely low flow of tourists, the number of people interested in long and short term rental in Lithuania decreased. This is especially felt in Vilnius. Demand for long-term rentals could increase in the fall at the beginning of the school year if universities do not apply distance education, but Sigismund Mauricas, chief economist at Luminor Bank, predicts that falling demand for short-term rentals could continue throughout the year.

“The short-term rental segment is mainly served by tourists, business representatives on business trips and employees from third countries, as well as Ukraine and Belarus, who have come to Lithuania. It is now that the number of all these potential owners it has declined and is likely to remain so throughout the year. Therefore, there are attempts to offer purchased and equipped apartments for short-term and long-term rentals, “says the economist.

However, according to Ž. Maurico, attempts to move from short-term to long-term leases pose a number of challenges. Firstly, the economist emphasizes the differences between short and long-term housing already mentioned by T. Kvainickas, such as installation, size, household appliances in apartments, etc.

“The needs of long-term homeowners are different. They need more amenities, such as a variety of appliances, from a large washing machine to a comfortable kitchen. People who rent a home for a short period of time usually use very little. or almost nothing in the kitchen, they rarely use a washing machine, other appliances, they eat in cafes and restaurants, “says Ž. Mauricas

Furthermore, according to the economist, residents looking for long-term rental housing are also interested in the environment of possible housing, the community.

“People are interested in knowing if there is a park around the object, in public places, if people have children, it is important to have a quick and convenient contact with educational institutions. Many apartments that are in the short-term rental segment do not meet these standards, so it can be quite difficult to rent such apartments, “emphasizes the economist.

Ž. Mauricas also points out that in recent years the property market in Lithuania has been dominated by smaller homes. As a result, according to the economist, there is a challenge, because a large part of these homes were bought not for themselves, but for investment, for rent (long or short term).

“People who do not plan to live in the home they are buying use other criteria when choosing a real estate object, such as being closer to the central part of the city, to make the building look more beautiful from the outside, etc. These types of apartments are often too small, a person has no place to store things, because the short-term rental does not require many closets, etc. Now it will largely depend on whether the landlord’s connection to invest more to make the apartments suitable for long-term rental, or whether he will still take the risk and try to rent the apartment as is, “explains the economist.

Some short-term homes are more luxurious

It’s hard to say exactly how many apartments in the short-term rental segment start renting for long-term rentals. Arnoldas Antanavičius, head of the public institution Realdata, a real estate analyst, says that by examining the supply of apartments for long-term rental before, during and after quarantine, you can see that the number of apartments in Vilnius for rent at Long-term has increased by approximately 700-800 units.

“If we look at the data from the most popular advertising portal aruodas.lt, before the quarantine there were around 1000 rental offers in Vilnius, and now there are between 1700 and 1800 apartments that are not for rent and are looking for owners. Vilnius has the largest market for apartments for rent, in Kaunas and Klaipeda it can number in the hundreds, and in other cities, even less, ”calculates A. Antanavičius.

According to him, it can be seen that short-term rental offers have decreased by about a third recently. According to A. Anatanavičius, part of the housing intended for short-term rental is less adapted to a permanent and comfortable life, but points out that some tourist apartments are equipped with extreme luxury.

“Apartments for short-term rental can be very cheap and modestly equipped, for example, for workers who come to Lithuania from abroad. But in general, short-term rental is characterized by the fact that most apartments are located in the old town, usually small, 1-2 bedroom apartments, very often they are luxuriously equipped to meet the needs of foreign tourists, businessmen who choose apartments instead of living in a hotel. Often the installation level is good enough, ”says the real estate analyst.

The aruodas.lt portal shared statistics on rental housing in Lithuania. It is reported that there were around 1,900 long-term rental listings in March, approximately 2,570 in April, approximately 2,860 listings in May, and about 2,880 listings in June.

According to A. Antanavičius, the price of renting the most luxurious homes can reach 500-600 euros per month. Not everyone can allocate such an amount for rent.

“The most popular rental home in Vilnius is 300-400 euros per month. A more expensive apartment is less for anyone to bite into. This is a home for the Lithuanian market, equipped to meet the needs of foreign tourists, sometimes it can be too expensive and luxurious, “explains the real estate analyst, adding that more expensive homeowners are simply forced to reduce prices to rent them for a longer period.

Rent or sale?

According to real estate analysts, part of the short-term rental home will actually start renting for a year or even more. According to T. S. Kvainickas, chief investment and analyst at Inreal, the owners are likely to try to sell. The decision on what to do with short-term rental housing rests with the owners of such real estate.

“It just came to our attention then. The poorer the property, the harder it is to sell, the better it is, obviously, the higher the price. If the property is intended to be leased, it can be rented cheaper. If the speed of sale It is not satisfactory, it can sell cheaper. In this way, a better asset is contrasted with a worse one, and its competitiveness increases, but the benefits for the owner decrease. The decision depends on the owner’s desire to receive more money and the possibility of wait for that money until the market recovers the relationship, “says T. Kvainickas.

In any case, the greater supply of long-term rental housing has caused a drop in rental prices. Admittedly, according to T. Kvainickas, prices will likely change again next season.

“Price changes in the rental market are higher than in sales, because, for example, 10%. The reduced rental price will only be valid for one year and will probably be higher in the next rental season, and This will not be a significant change in the overall performance of the property rental flow. Meanwhile, after selling the property 10 percent. It will be cheaper not to reduce part but all of your expected return flow. Sellers are aware of this and are reluctant to cut prices. Buyers, on the other hand, find it harder for sellers to sell their homes and obviously want tangible discounts. A situation is forming: sellers are reluctant to sell cheaper and buyers don’t want to buy more expensive ”, explains the interlocutor.

According to real estate analyst A. Antanavičius, if sellers don’t lower prices and rental prices stay lower for some time, the alternative to investing in rental housing becomes less attractive.

“We will probably see that there will be fewer potential investors, perhaps they will look for cheaper options, they will negotiate the price, but such a situation is a serious sign that the rental market no longer seems very attractive,” predicts the interlocutor.

T. Kvainickas adds that, depending on the economic situation, changes in bank financing policy, a situation may arise in which the purchase of houses will become more expensive and the rent will be a better option for some time, but the effect The economic pandemic is not yet clear and difficult to predict.