27.06.2022

Comparing real estate investments in Lithuanian towns to bigger cities: towns generate double-digit annual returns

Gustas Germanavičius

Comparing real estate investments in Lithuanian towns to bigger cities: towns generate double-digit annual returns

Investors in rental properties observe the highest market growth in Lithuania's smaller towns and earned annual investment returns in double-digit percentages.
 
"One should not generalize and focus only on Vilnius - there are many niches in Lithuania. Vilnius, as a market, has excellent liquidity, but at the same time, it has very high competition. In many smaller cities, real estate is several times cheaper than in the capital, but the rental price in these cities is only 20% behind that in Vilnius.
 
Currently, through InRento, it is possible to invest in rental projects both in the Old Town of Vilnius and, for example, in Vievis.” Gustas Germanavičius shares his insights into their values, potential risks, and investment returns.
 
Property values rise in smaller towns
 
Experts note that over the last three years, the highest value appreciation of real estate has not been in Vilnius: prices have risen much more significantly in smaller towns. Gustas identifies the pandemic and the changing consciousness of people as one of the main reasons for this.
 
"People have realized that they are not taking advantage of all the benefits of a big city and that living here is becoming too expensive, so it is not worth staying in Vilnius. They started working remotely and moved or returned to their home country. The demand for real estate in those cities has increased, and so has the price, because people have no alternatives," says Germanavičius.
 
According to him, in recent years, a short-term rental apartment in Birštonas would have earned more than a property in Vilnius Old Town in terms of price growth. Those who realized this earlier bought apartments in Druskininkai, Birštonas, and other tourist towns at significantly lower prices.
 
"In Vilnius, there is a lot of supply, but we have a competitive market, so investing in Vilnius, you can expect a 4% return - such figures do not always satisfy investors. In smaller towns, there is also less supply, so if there is demand, you can expect to earn higher sums, even double-digit returns. Those who already own real estate in Druskininkai or Birštonas are now calculating returns in the tens of percentages," says G. Germanavičius.
 
Rental prices in Vievis are catching up with the capital
 
The head of InRento identifies non-resort Lithuanian cities, where the industry is developing, and there is no shortage of jobs, as an up-and-coming segment: Vievis, Elektrėnai, Kėdainiai, Marijampolė. He points out that only a few apartments are available for rent in Vievis, and the rental prices are the same as in Vilnius.
 
Compared to the capital, the popularity of investments in smaller towns is also due to the sharp difference in the ratio of square metres to rent.
 
"Imagine that you earn rent and buy an apartment in the Žirmūnai district of Vilnius for 3,000 EUR/sqm. This small apartment will generate you €400 per month. Now imagine buying an apartment of the same size in Vievis for five times less than 600 EUR/sqm. Today, you would rent this apartment in Vievis for EUR 300/month," says G. Germanavičius.
 
Speaking about commercial and administrative premises, G. Germanavičius says that in smaller towns, there is a limited supply of these types of premises, and as soon as new ones appear, they are occupied by solid tenants.
 
"In towns like Anykščiai, there are not many commercial premises in the center, and the existing ones are occupied by, for example, banks. So if you invest in commercial property here, you will have solid tenants for ten or more years ahead," says Germanavičius.
 
Institutional investors prefer the capital
 
According to Gustas, smaller cities are oriented toward smaller investors because there is nothing to buy, and the volumes are smaller if there are any. Meanwhile, Vilnius is more popular with institutional investors, who can buy a building of 10,000 sqm and rent it without any problems.
 
On the other hand, G. Germanavičius notes that even in Vilnius, there are areas where it makes less sense to invest, as the returns will not be impressive.
 
"Vilnius Old Town is another story. It is worth investing here precisely because there is no supply. And when there is no supply, there will always be demand. In this case, you may not make much from renting, but you will have protected your money. We have already seen this during the 2008 crisis, when property values in the Old Town of Vilnius fell either very little or not at all, and Old Town real estate was the first to recover," G. Germanavičius says.
 
G. Germanavičius identifies another trend in the capital city - the growing demand for small apartments of up to 20 sq.m., otherwise known as micro-apartments.
 
"One part of their tenants is clear - they are young people, mostly students. Others are adults and working professionals who spend a few days a week in micro flats. They come to Vilnius from Panevėžys or Ukmergė just for work. But, again, we are returning to the same trend - people are returning to their home countries and coming to the capital for just a few days a week," says G. Germanavičius. 
 
It is best to diversify your investments
 
According to the CEO of InRento, it is advisable to invest in different assets simultaneously, and it is equally important to weigh up the money and the potential risks.
 
"It's best to diversify your investments, i.e. don't put all your eggs in one basket. It is important to diversify investments not only across different assets but also across time. If people are worried about the recession, I want to stress that we are in the business of investing, not speculating. We have slightly longer investment periods: 3 and 5 years," says Gustas.
 
According to him, diversification over time is a critical factor that does not receive enough attention from investors and has a different risk profile. He says that investing in longer-term rental property projects protects money: it may be exposed to short-term fluctuations, but in the longer term, the hard times pass, and the changes normalize.
 
G. Germanavičius calls for attention to be paid to the risk: what is the product, what is the investment. He stresses that steady investment in different rental property projects is the best approach.
 
"Investing is a discipline, and to stay disciplined, you need an investment strategy. Whatever the investment, be it €500 a month, the key is consistency and diversification. In Vilnius, the return is lower, but it is not worth missing out because you will have diversification here," says Germanavičius. 
 
Facing administrative challenges
 
Gustas says that the administration is a major problem for diversifying investments outside the capital. Whether it is the seaside, resorts, or smaller towns in Lithuania, administrative challenges are faced by all those acquiring an investment property here. 
 
"In our case, we do all the work for the investor, so there is no extra work for the investor and no investment fees. In Lithuania, we offer investments in rental property projects in the capital city, as well as in resorts and smaller towns. Since we started our business, we have been offering the opportunity to invest not only in our country but also abroad, for example, in Spain," says Germanavičius. 
 
"The InRento platform works in a simple way: it connects investors with project owners who need funds to buy rental properties. The project owners receive the necessary funds, while the investors earn from the rental interest paid to them and the capital gains from selling the acquired property for more than the original price.
 
For short-term rental or tourism-oriented projects, InRento also offers a timeshare option. This model is popular in Western Europe and the US, where investors can stay for a few nights in the property they have invested in.” adds the CEO.  
 
 

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