15 March 2023, Lithuania. In 2022, the Lithuanian economy grew by 2.2%. However, high inflation is expected to be a challenge in 2023, with recovery anticipated in the second half of the year. The primary housing market reached its bottom at the turn of 2022/2023. The main obstacle preventing a pushback from the bottom is a significant decrease in the population's purchasing power. Real estate legislation continues to face one of the most pressing issues, which is the restructuring of land management and use.
The global economy has recently undergone a challenging period due to relentless geopolitical tension, record inflation, and sharply rising interest rates, which have hindered economic processes in both domestic and external markets. Despite these challenges, the Lithuanian economy demonstrated remarkable resistance to external shocks in 2022, with GDP growth of 2.2%. Such growth was driven by strong industrial performance and successful business manoeuvrability in international trade. However, in the last quarter, as these risks intensified, the country's economy shrank by 0.4%, which is the largest decline in the entire European Union. “Record inflation remains one of the biggest challenges facing the country, with prices rising by a fifth last year and an expected increase of 9-10% this year. While wages increased by a tenth, this only partially compensated for the negative effects of inflation. With the economic development of the main trading partners stagnating, the country's economic situation may worsen in the coming months, and the possibility of a recession cannot be ruled out, although it is expected to be short-lived. Some good news is expected in the second half of the year, including inflation decreasing to a single-digit level, possibly lower interest rates, recovery of export markets,” says Tomas Kipišas, Head of Saving and Investment Products at Šiaulių bankas.
"The reserve of issued building permits was rapidly depleted in 2022, which is particularly noticeable in the capital where the demand for new apartments is the highest. With low market activity, the supply is gradually increasing. However, if those who postponed their decision to purchase a home in 2022 decide to make the purchase in 2023, the existing supply may not be enough, and the formal buyer's market will soon become a real seller's market," says Tomas Sovijus Kvainickas, Chief Investment and Analytics Officer at INREAL Group. According to him, the main problems remain the same, including rising costs of construction materials and labour, new requirements and taxation of development, the growth of residents’ inability to keep up with inflation. The market imbalance has severely reduced the ability, and expectations, of buyers to purchase a home, especially affecting economy-class buyers. During the year, apartments in this segment became more expensive than middle-class housing in 2020-2021. Consequently, housing in other segments also became more expensive. While remote work trends have encouraged some real estate developers to take on projects further from the city centre, not all have been able to offer benefits that make the greater distance irrelevant. “Employment fluctuations in business centres were not significant, and the managers of such centres did not face more problems. However, tenants confronting indexation challenges at the turn of the year, especially when the contracts did not provide for upper limits, have experienced difficulties,” says T.S. Kvainickas.
“The decline in the activity of home buyers is associated with increased uncertainty about the future. In 2022, the constantly changing economic and geopolitical situation made it difficult to plan and make long-term decisions,” says Vilius Visockas, Developer and Manager of the RE platform at CityNow. According to him, fewer economic and middle-class housing projects have been launched, but the selection and the number of prestigious class housing projects, which react more gently to economic changes in the cycle, have even increased. Most of the projects that started in the second half of 2022 are considered new stages. Developers tend to stick with locations that have already proven themselves in the market and also seek to use existing, coordinated building permits. Those who currently want to live in the highest-class housing of Vilnius city can, or will soon be able to, choose between the central part of the city, Paupys, Antakalnis, and Naujamiestis. “I would think that the biggest influence on the direction of the market in 2023 will be the expectations of its participants, which will depend on how many new variables we encounter this year,” states V. Visockas.
“When summarizing the changes that took place during the last year and constantly monitoring the legislative process, the question arises: what is the main priority of such a process - the consistent improvement of legal norms and policy development or an attempt to quickly fill the holes that appear in practice? It is clear that the legislative process should respond to both of these aspects, but sometimes, especially while observing the process of consideration and adoption of laws, there is no doubt that such important principles as the principles of expedience and proportionality established in the Law on Legislative Framework of the Republic of Lithuania should be a primary consideration. Let’s contemplate whether the prohibition on entering into purchase and sale contracts for apartments and other residential premises located in another building when the construction of such premises is less than 100% complete was the best way to solve the issues that were more the exception than the rule in the market. As usual, all questions will be answered in practice,” says Artūras Kojala, COBALT Partner in the Real Estate and Infrastructure Department. According to him, the beginning of 2023 promises to be no less active in the development of legal norms and their application. One of the most pressing issues remains the restructuring of land management and use.
About INREAL group
INREAL is a brand of an idea, which gives spark to unique projects, basis for professional services, and added value to businesses, clients, and partners. INREAL positions creativity as a core value in the dynamic business world. INREAL Group, which consists of UAB "Inreal", UAB "Inreal GEO" , UAB "Inreal valdymas" and its managed companies, develops unique real estate (RE) projects and provides probably the widest range of real estate services in 11 cities in Lithuania. The company has engaged in business operations for more than 25 years and implemented more than 70 real estate projects of various purposes, which received recognition and awards at contests not only in Lithuania but on an international scale as well.
More information:
Rūta Merčaitienė Head of Marketing and Communication at INREAL group +370 611 29 779 ruta.mercaitiene@inreal.lt