Decrease in transactions in Vilnius were amortised by RE developers’ marketing solutions

April 16, 2015. Vilnius. Despite the favourable trends of economic development in the country, the first quarter of 2015 gloomier moods were prevailing in the real estate (RE) market in Lithuania than a year ago – the amount of purchase-sale transactions was decreasing in all segments: by 36 percent in apartments, by 22.5 percent in private houses, and by 9 percent in land-plots. Vilnius housing market was affected by negative moods the least; new construction apartment sales exceeded the forecasted amounts – in total, 768 apartments were sold. “Inreal” calculates that every fourth project, which has been already built, offered one or another sales offers amounting to EUR 3-5 thousand usually. More optimistic moods were prevailing in the commercial segment – more active investment funds result in more favourable environment to RE developers.

The prospects of Lithuanian economy remain positive in the context of euro area, therefore this year Lithuania will be one of the fastest-growing countries in Europe and will maintain one of the most stable economies. The Central Bank of Lithuania forecasts that in 2015-2016 the GDP rate will grow by 2.7 and 3.5 percent, respectively; meanwhile, the forecasts of economic development in the euro area are much more modest: 1.3-1.9 percent. Domestic consumption is growing. This trend should remain and contribute to the consistent GDP growth in the near future. On the other hand, consumers’ expectations remain under a strong influence of external factors, in particular, of geopolitical situation in the region. According to Tomas Varenbergas, Proprietary Investments Manager at Bank Finasta, growing consumption allows maintaining the economic development in the country. “Higher employment rate and increased real wage are the main factors leading to more active consumers. However, changing consumers’ expectations are further influenced strongly by external factors, in particular by geopolitical situation in the region. Especially low deposit interest rates constantly promote households look for alternative saving and investing possibilities. We expect that the conservative approach of households to saving will be changing step-by-step and other options, such as bonds, voluntary pension funds, RE funds or other investing and saving products, will become of higher demand”, – stated T. Varenbergas.

Deteriorated consumers’ expectations resulted in the decrease in the real estate (RE) purchase-sale transactions in all segments. Within the first quarter of 2015, the amount of apartment transactions has decreased by 36 percent, private houses - by 22.5 percent, and land-plots - by 9 percent. According to the analysts of “Inreal”, the main cause, which has led to lower liquidity outcome of RE market, was the conflict between Russia and Ukraine, as well as its consequences on the political-economical situation.

Vilnius housing market was affected by negative moods the least; new construction apartment sales exceeded the forecasted amounts in Vilnius, what resulted in changes in general statistics – in total, 768 apartments were sold instead of the forecasted 600. It is likely, that such result would not have been achieved without more active RE sellers, who offered various sales offers, discounts or gifts in the first quarter of 2015, usually amounting to EUR 3-5 thousand. “These offers were mostly directed to the economic segment, which showed the increase of 65.3 percent after the period of decrease, which has lasted for three quarters consecutively – there were 334 apartments sold in total. At the end of the first quarter of 2015, the amount of unsold (free or reserved) apartments reached 4,280 in the capital city”, - stated Arnoldas Antanavičius, Head of Investing and Analysis Department of “Inreal”. Nevertheless, the developers remained rather active – they have offered about 670 new apartments in total to the market. The liquidity rate[1] of new construction apartments in Vilnius, calculated by “Inreal” has stabilized at 1.5-1.6. Such value of the liquidity rate means that the period of stable prices should be expected for the upcoming quarter. In comparison with the corresponding period of 2014, the average price of economy-class apartments in Vilnius reached 1,220 EUR/sq.m. and decreased by 4.2 percent; the average price of mid-class apartments reached 1,710 EUR/sq.m. and increased by 5.6 percent; meanwhile, the average price of luxury-class apartments reached 2,540 EUR/sq.m. and decreased by 1.6 percent. In the first quarter of 2015, the housing markets in Kaunas, Klaipeda and coastal region were affected by general gloomier moods – purchase-sale transactions were decreasing in old construction as well as new construction segments. The volumes of transactions returned to the level of 2012-2013. Likely, in 2015, the market will remain sluggish in these cities, and prices will be stable or change insignificantly. Despite the considerable decrease in market liquidity, it is less likely, that RE sellers will start reducing prices – more likely, that they will decide to wait for the natural recovery in the market.

Increasing oversupply in the residential housing market, and strengthened requirements of responsible borrowing make the real estate market participants look for alternatives to traditional housing purchase-sale transactions. Recently, the real estate market was re-introduced with the opportunity of rent-to-buy. With this method a tenant rents housing from the real estate developer for several years, paying rents throughout the period, and at the end of the rent period, the amount paid is considered as down payment in order to get a credit from bank to buy the housing rented. “The risks occurring to a tenant from rent-to-buy contract are worth to be mentioned: the ownership to property rented is transferred only after proper completion of the lease contract; if such contract is terminated, a tenant cannot require the ownership to the property rented. Notary costs will not be avoided, since ownership can be transferred through the agreements approved by a notary only. It should also be noted that only  a duly published (registered) contract will secure tenant’s interest properly, meanwhile inappropriate formulation of contract or rent fee targets may lead to the invalidity of the entire contract”, -- stated Simona Oliškevičiūtė–Cicėnienė, the lawyer and the Manager of Real Estate and Infrastructure Practice Group of Raidla Lejins & Norcous.

More active investment funds result in more favourable environment to RE developers for successful development and sales of commercial objects, and investing the amounts received in the development of new projects. The highest activity was experienced by the segment of business centres: in the first quarter of 2015 the construction works of the business centre “Vertingis” were finished and the development of 5 projects has continued – they should add approx. 59,200 sq.m. of rentable area to the market. Despite the impressive development, the construction works of at least several business centres are also planned in the centre of the capital city. The development of commercial objects is sluggish in other cities: construction works of two business centres in Kaunas (4,500 sq.m., in total), and construction works of a business centre (2,500 sq.m.) in Klaipeda are planned. In the first quarter of 2015, an insignificant increase in lease prices was observed in the major cities due to round-up in Euro.

In the first quarter of 2015, the expansion of shopping centre “Babilonas I” was finished in Panevezys; the area has increased by 1,600 sq.m. and the shopping centre was renamed as RYO. Moreover, the construction works of planned shopping centres were continued, however new projects are not foreseen to be started in the near future due to slower economic growth.

In the first quarter of 2015, new projects for lease have not been opened in the industrial and warehousing segment; the expansion of existing projects has continued. The majority of projects being implemented were built-to-suit, which are focused in the major cities and their surroundings. The lease prices in the logistics centres have remained stable in the first quarter of 2015. Lower expectations of the economic growth pose new challenges in the industrial and warehousing sector; however the potential of Lithuania remains high in a long-term perspective. It is possible, that the industrial development will not stop in Lithuania and it will form additional demand of warehousing premises. An increase in lease prices should not be expected in 2015, however new projects should be developed and the expansion of this segment should be held.

Market report

JSC “Inreal GEO”, JSC “Inreal valdymas” and JSC “Inreal”, provides probably the widest spectrum of services in Lithuania, related to real estate. Inreal group companies belong to SC “Invalda privatus kapitalas”. About 90 employees are currently working in Inreal group; mediations in lease or sale of more than 550 thousand sq.m of commercial premises, over 550 residential housing objects, and over 300 land plots. The company mediates in 50 residential housing projects, 24 investment projects, or their portfolios. More than 4,900 valuation reports and about 80 consultations (feasibility studies, investment memorandums, and market research) are being drawn up annually. The value of asset of valuation is above 725 million euros. Company offices or representations are operating in Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys, Mažeikiai, Alytus, Plungė and Utena. Currently JSC "Inreal Valdymas" develops two real estate projects: houses in Nida "Kopų vetrunges" ("Dunes weathervanes"; „Kopų vėtrungės“) and apartments and comercial premises in Klaipeda oldtown "Danes uzutekis" ("Danes Bay"; „Danės užutėkis“). 

AB bank Finasta was founded in 2008. Bank specialization - investment and private banking services. Bank provides a wide range of services including both daily banking and corporate banking, investment banking services, also brokerage services. Bank Finasta for three consecutive years was nominated among the Top 3 banks providing best customer service in Lithuania. In 2013 EUROMONEY rated bank Finasta as the best bank in providing private banking services in Lithuania and also the bank providing the widest range of investment products inLithuania.

„Raidla Lejins & Norcous law offices in Lithuania, Latvia, Estonia and Belarus are the leaders of pan-Baltic legal practice with 120 attorneys. They render comprehensive legal services to national, regional and international legal entities, including multinational enterprises, banks and financial institutions. Raidla Lejins & Norcous’ expertise is consistently ranked in the top tier by the most prestigious legal research directories, such as Chambers Global, Chambers Europe, Legal 500, IFLR 1000 and others. According to Mergermarket, one of the most influential and reputable mergers and acquisitions (M&A) market research directory, in 2014 the law offices Raidla Lejins & Norcous was the leading legal adviser by the number of M&A transactions advised in Lithuania.

More information: