This article was published in the news media.
Vilnius ranks among the top 10 European capitals with some of the highest rental yields in the second quarter of 2024. According to the Global Property Guide, the return on investment (ROI) in the Lithuanian capital stands at 5.23%. What does this mean for the Lithuanian real estate (RE) market, and what challenges lie ahead?
The Market is Small, and Demand Continues to Grow
In recent years, population growth, falling interest rates, and improved housing affordability have all shaped rental market trends, driving both an increase in new tenants and heightened investor interest in real estate. These factors have fostered greater competition among rental providers, which has contributed to the availability of higher-quality housing and more attractive rental prices for tenants.
In the first half of this year, changes in rental prices in Vilnius were modest. According to Gustas Germanavičius, founder of the crowdfunding platform InRento, the average rental price in the capital grew by 6.5% from January to July 2024, increasing from EUR 13.96 per month per square metre in January to EUR 14.87 in July, based on data from the real estate classifieds portal "Aruodas". However, the lack of housing supply may soon pose significant challenges.
"The market in Vilnius is very small, with an even smaller supply, so even small changes can have a significant impact. With supply stagnating and demand rising, rents are increasing rapidly. For example, thousands of new residents have moved to Vilnius in recent years, many fleeing the war in Ukraine, which has created a surge in demand and higher prices for rental accommodation. This trend is also reflected in the German brigade being established, where even with a relatively small group of 150 people, they have faced challenges finding suitable housing," says G. Germanavičius.
Moreover, as the capital's population continues to grow, Vilnius is also grappling with the challenges of urbanisation. "The city's development is limited—the densely populated centre doesn't allow for new housing to be built where it is needed most," G. Germanavičius adds. Most new construction is occurring in the suburbs, but these areas often fall short of the population's needs due to a lack of infrastructure or difficult access to the city centre.
Housing Affordability Challenges Ahead
Housing affordability in Vilnius may become even more strained due to delays in building permits and other legal processes. According to G. Germanavičius, this issue is exacerbated by stringent and frequently changing legislation.
"There have always been legal constraints, but they continue to become stricter and are often subject to frequent changes. These frequent changes create uncertainty for public authorities about how to correctly apply new regulations, which makes the housing development process more time-consuming. As a result, the average age of first-time homebuyers will likely continue to rise, and a large proportion of future generations may be forced to rent instead of owning," the expert explains.
G. Germanavičius points out that this trend is already common in many Western European countries, but in Lithuania, such a shift could represent a major change in lifestyle and economic preferences, with more people choosing to rent rather than buy.
Investment Opportunities with InRento
G. Germanavičius adds that through InRento, investors can access carefully selected real estate projects, ensuring high quality and reliable returns. These projects typically offered an average annual return of 12%, allowing investors to earn competitive returns. Furthermore, interest is paid monthly — similar to rental income — providing investors with regular cash flows throughout the investment period.
However, it is important to note that all investments carry the risk of losing some or all of the invested amount. Therefore, it is advisable to diversify investments and approach them responsibly.
