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Why rental prices are rising rapidly in Lithuania?

Deividas Urbanovičius
Why rental prices are rising rapidly in Lithuania?
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From the beginning of 2010 to the second quarter of 2021, real estate rental prices in Lithuania have been among the fastest-growing in the European Union (EU). For investors, this is a positive sign that investing in rental property projects holds the promise of very healthy returns.
According to Eurostat data, rental prices grew the most in Estonia by about 142 percent, followed by Lithuania, recording rental growth at 109 percent, and Ireland 66 percent. Rentals in Lithuania and Estonia have increased mainly due to the capital effect of an influx of young people to Vilnius and Tallinn, says Deividas Urbanovičius, Head of Investment at InRento. They are attracted by better study opportunities and the increasing presence of foreign corporations in the capital cities, offering a wider range of career choices and more attractive salaries.
"Both Vilnius and Tallinn have rapidly growing populations. Young people come here to study, stay for work and eventually start building their families where they have established their homes. Since 2010 the official population of Vilnius increased by 5% and that of Tallinn by almost 8%. Furthermore, research shows that renting property is more common than buying at the beginning of a person’s career,” says Urbanovičius.
According to Urbanovičius, owning a property is not a  priority for the millennial generation. Renting a property is often a more appealing lifestyle choice, as it offers the possibility of relocating quickly as circumstances change. For this reason, the prospect of renting rather than buying a home is more attractive to young adults.
"Rising prices in Vilnius and Tallinn have also been boosted by the growing purchasing power of young people. More and more people work for large foreign companies in the field of fintech, especially IT, where they receive higher-than-average salaries and do not see a problem in paying higher rental prices to get a house they like, ” said Urbanovičius.
The situation in Ireland is somewhat different with increased rental prices determined by t low supply of developed properties, high immigration, and a high percentage of young people. This has led to demand almost doubling supply, and consequently, many property owners are increasing rental rates.
The attractiveness of rentals continues to grow
Looking at the last decade in Lithuania, the price-growth of real estate rentals has exceeded those recorded in housing sales, although the boom in real estate prices in recent years may change the situation.
"Since the introduction of the euro, Lithuania is among the countries with the fastest GDP growth rate in the eurozone, the average wage is growing by almost a tenth every year and so is inflation. Consequently both housing sales and rental prices are rising.
On the other hand, during the pandemic, many people decided to move to larger homes. As a result, we are currently seeing a high demand for housing that real estate developers are not keeping up with. In response, real estate sales prices have risen by about 20 percent over the past year, with rental price growth lagging by about 12 percent,” said Urbanovičius. This dynamic is likely to lead to less affordability for homeownership,  which will make renting an even more popular housing option.
"Compared to Western Europe, Lithuania has a very high number of owner-occupied dwellings, with more than 80% of owners living in their property. By comparison, in Western Europe, these figures are much lower at around 50%. The rising price of real estate in Lithuania will undoubtedly influence peoples’ choices and gradually we will see more and more people choosing to rent instead of buying their home,” he added.
Although this may not seem particularly appealing to Lithuanians, who historically prefer to own their own homes,  Urbanovičius says that it is neither good nor bad.
"People had their own housing in the Soviet Unions, but this didn‘t guarantee a quality life. Some people live in rental housing for a lifetime but get excellent infrastructure and necessary amenities nearby. On that basis, owning a home does not necessarily equal a great quality of life,” he argues.
Fintech opens up more investment opportunities
Deividas also recognizes that the growing Lithuanian real estate rental market is becoming more and more attractive for investors.
"First of all, it means that large-scale investors are coming to the market and they are generally real estate developers who are focused not only on selling houses but also on renting them," he says. Another positive development is greater market transparency. With reliable developers in the market, shadow transactions and tax evasion are likely to decrease, with large companies implementing transparency and compliance standards with contracts and commitments that offer full security to tenants", concluded Urbanovičius.