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Good news for landlords, worse news for tenants: rental prices are not likely to decrease in Vilnius

Gustas Germanavičius
Good news for landlords, worse news for tenants: rental prices are not likely to decrease in Vilnius
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This article was posted on Delfi.lt

Although the situation of the real estate development market in Lithuania has not been painted in the brightest colours lately, specialists assure that those planning to buy a home in the capital should not be worried, as the current situation allows buyers to acquire a home that suits their needs for the right price.

Vilnius is showing stability in the property market

The situation in the primary real estate market in the country is not homogeneous, but it is stable in the capital, says Vilius Visockas, product manager at CityNow. The statistics speak for themselves: since the beginning of the year, around 200 apartment purchases have been finalized every month in Vilnius, maintaining roughly the same level of activity as in the spring of last year. In other cities, there has been a decrease in activity: comparing this year and last year, the number of agreements has dropped from 400 to 225 in Kaunas, from 114 to 79 in Klaipėda, and from 252 to 149 in the seaside region. 

The decrease in overall activity reflects the current mood of anticipation and uncertainty among homebuyers in the primary market due to economic instability. However, economists' forecasts for the future suggest positive developments. This is exemplified by the 15% jump in the price index on the US market, after the Federal Reserve System (the US central bank) decided not to raise interest rates and Congress agreed to raise the debt ceiling. A similar effect can be expected in the European area once the interest rate hikes forecast by economists for next year have been stabilised.

"On the primary market we have not seen any significant price corrections either way recently, while on the secondary market the prices of apartments have come close to the asking price, although at peak times it was common to have a premium of 10% or more and expect the market price to swallow it. To sum up, we can say that recently there is a return to liquidity or quality, and the market is now dominated by motivated buyers and sellers," says V. Visockas. 

Gustas Germanavičius, the founder of the crowdfunding platform "InRento", adds that it is not possible to assess the situation in the real estate market unequivocally because of the different indicators in different segments. 

"By Vilnius standards, affordable housing up to EUR 200,000 is stable on the market. In this segment, there are many buyers who have sufficient funds to purchase a property, so they do not have to worry about the unstable economic situation and the interest rate growth that worries some potential buyers," says G. Germanavičius. 

- We notice that people who are planning to buy a home are more influenced by the general perceived background, but not by their specific financial situation. Banks public statistics only confirm this: even with the rise in Euribor interest rates, people continue to buy real estate, and the increase in late payments by those who already have loans is not significantly recorded either. This is also the case in our portfolio, which is full of new-build apartments - we have crossed the EUR 11 million transaction threshold and there is not a single late payment among them."

No significant price decrease should be expected in the capital

After the pandemic phase of the Vilnius market, a contraction of supply has been observed recently - as the demand for real estate increased and buyers snapped up apartments, it took time to restore supply to the baseline level. According to V. Visockas, this creates preconditions for not decreasing property prices in the capital. 

"Another reason is the demand for high quality property and the growing share of employees working for global companies who choose to live in Lithuania and work remotely. Prestigious, spacious (3-4 rooms) housing in the central part of the city is easily realised even now. On the other hand, due to higher interest rates and lower loan amounts, there is a lack of supply of affordable, economically priced properties," says Visockas.

Renting in Vilnius generates exceptionally high returns

For those who are thinking about buying a home for rental purposes or who want to invest in real estate rental projects through crowdfunding platforms, specialists have good news - prices in the rental market are trending upwards and there is no reason for their fall. 

"Vilnius stands out from other Lithuanian cities because of its steadily growing population, but the growth of real estate supply in the capital is very limited.  It is naive to expect that new housing will magically appear - the centre of Vilnius is almost built up and there are practically no vacant spaces for property development. This indicates a potential further growth of rental prices in the capital", - says G. Germanavičius.

Traditionally, the most stable rental segment remains small-area, well-equipped apartments in major Lithuanian cities. However, trends show that Lithuanian buyers value the number of rooms and additional advantages rather than the square footage of the property, so the most sought-after apartments include not only mini flats and lofts, but also 3-4 room flats with storage rooms and private parking spaces. 

"One of the most important criteria to consider when thinking about buying a home is the liquidity of the property. Assets that generate financial returns always have value. In comparison, you can buy a townhouse in the suburbs and pay a lot of money for it, but you are unlikely to earn a solid return by renting it out. As an investment property, it has much less value than an apartment in Vilnius. 

It is debatable what an adequate price per square metre should be, but it is always determined by the market - buyer and seller. The value of the property should therefore be based on the potential return. Such assets, especially those in Vilnius, are almost always liquid and usually retain a higher price," says Germanavičius. 

Those who want to invest in rental property but do not want to take on the risk of administration or do not have sufficient initial capital to buy a home can choose an alternative - investing in rental property projects through the crowdfunding platform InRento, which allows you to passively earn a solid return from rental projects. 

"When selecting the projects to be financed, we always take into account whether the property is liquid in terms of rent. With a steadily growing population and tourism increasing the demand for accommodation, we focus on these two most stable sectors in the rental market. Currently, the situation in the capital is very favorable - professional landlords can expect an 8% return on new-build apartments, which is really high in the European context," says G. Germanavičius, founder of InRento.

"On the InRento platform, all investors' investments are secured by a first charge on the property - a mortgage - pledging the property to the investors. In addition, the value of the pledged property never exceeds the value of the loan provided by the investors, and for many projects the return that the project owner generates from the rent is higher than the interest that has to be paid to the investors every month. This risk policy allows to significantly reduce the risk of insolvency of the project owner.