This article was originally published on delfi.lt
Gustas Germanavičius, the founder of crowdfunding platform InRento, says that the last three years have been chaotic, which has also been reflected in the property and financial markets. What are the major turning points in these markets since the beginning of 2020? What is important to know for those looking to invest in the 2024?
Property has fallen in price, rental yields have fallen
"The COVID-19 pandemic has sent shockwaves through society. Both the property market and the financial markets came to a near standstill as people did not know what to do. It must have taken some time for people to realise that life goes on - even in quarantine", says Germanavičius.
As the pandemic gathered pace, property prices started to rise but the rental segment took a hit, with rental yields falling.
While in Vilnius the rental return before the pandemic was around 6-7%, at the height of the pandemic it dropped to around 4%, and in the Old Town it was possible to find properties with rental returns of around 3%.
According to the correspondent, the fact that the price of real estate has not risen while rents have risen is a rather strange phenomenon.
"Many people have started to believe that the rental market is in a bad state, even in the residential rental segment. Landlords were afraid to raise prices because they thought that tenants would leave and there would be no one to rent to. But if we think logically, people spent most of their time at home and hardly went anywhere, so the rent or mortgage payment was probably their main expense," says Germanavičius.
What has led to the rise in property prices?
According to the founder of InRento, there are several reasons for the rise in property prices.
First of all, both the US and the EU have injected large amounts of money into the market as a result of stimulative monetary policies. This has led to a rise in inflation, and thus also to a rise in real estate prices, as they tend to rise in line with inflation.
Another reason is that people saved enough money during the quarantine period for a down payment and borrowing was cheap due to the zero EURIBOR. This led to a significant increase in sales.
However, the property market has been in shock since the start of the pandemic - developers have been afraid to make decisions - so the supply of property has started to lag behind the current demand.
"As the pandemic continued, rental yields reached historic lows and inflation rose by around 20%. This difficult period was reflected in all financial markets," notes Germanavičius.
Changes during the war in Ukraine
According to him, the outbreak of the war in Ukraine was followed by a change in both EU and US policy. Aid to Ukraine and attempts to control inflation became a priority. Financial markets fell or stopped rising again.
The war in Ukraine caused Lithuania, like other EU countries, to be flooded with refugees in need of accommodation.
"At the start of the war, property developers took a more conservative approach to development, so property supply remained limited. The characteristic of real estate is that you cannot suddenly create it out of thin air. So as the population of people in Lithuania increased, rents rose accordingly. Rental yields in Vilnius have returned to 6-7%," he notes.
At the same time, the rise in EURIBOR and high inflation have reduced people's ability to buy a home. This led to a slowdown in property price growth.
Meanwhile, in Poland, where InRento started expanded in 2023, a loan programme was launched to ensure sufficient housing demand.
"Under this programme, people buying their first home in Poland are subsidized by the state for ten years at 2% fixed interest. Around 40,000 newcomers have benefited from this programme, which has helped to keep the market stable, unlike in Lithuania," explains Mr Germanavičius.
Where to invest now?
"The founder of InRento says that now, as the New Year approached, there is a decrease in the volume of real estate transactions.
"However, whether it was justified to stop investing and develop during this year remains a matter of debate," says Germanavičius.
At the moment, EURIBOR is no longer rising, inflation is under control and the property and financial market is slowly recovering. According to him, concentrated investment in real estate rental projects can offer a good risk-return ratio.
"Sellers and owners of larger real estate projects are still willing to sell at sub-optimal prices, similar to what happened at the beginning of the pandemic. This means that those involved in property conversions or accommodation activities can acquire properties at more attractive prices, leading to higher profitability. The higher the so-called margin of safety, the safer it is for the investor," explains Mr Germanavičius.
The future will be dictated by the US presidential election
As for next year's market, he says it will be shaped by two main events - EURIBOR and the US elections. Who becomes US President will determine the future geopolitical direction of Ukraine, the Middle East and China.
"There is not enough real estate development in Lithuania at the moment, so if EURIBOR falls, buyer activity will increase again, and the existing supply will not be enough. This should lead to an increase in both real estate and rental prices", - predicts G. Germanavičius.
So what should a person who wants to start investing this year look out for?
"In investing, as in life, the most important thing is discipline and having a strategy. When investing, it is important to define your goals, your strategy, and to execute it," says Mr Germanavičius.
"The founder of InRento believes that people who want to start investing should do so in smaller amounts, gradually observing the environment and learning.
"Whether you invest in real estate projects through crowdfunding platforms or in shares, the best results are achieved over a long period of time by investing regularly," he stresses.
In 2021, when property prices were on the rise, many avoided investing, he says. However, compared to 2022 prices, those investments would have paid off.
"It is important to diversify your profile, but the most important thing is to remember to diversify between different time periods. This ensures the sustainability and stability of the investment," says Mr Germanavičius.
