|Lithuania economy and RE market review Q1 2015|
Consistent economic growth. The prospects of Lithuanian economy remain positive in the context of euro area, therefore this year Lithuania will remain 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.
Increasing domestic consumption. This trend should remain and contribute to the consistent GDP growth in the near future. Consumers’ optimism grew along with the increasing wages. However, consumers’ expectations remain under a strong influence of external factors.
The Euro. Changes in the Euro value against other currencies should not be expected in the near future, since the European Central Bank only introduces more measures for quantitative easing and to stimulate the economy. In addition, the endless political changes in Greece and its negotiations on debt repayment have significant influence on the general economic climate in EU as well as investors’ moods.
Stable and low inflation with some “flavour” of deflation. We do not forecast growing prices in the near future – the prices of raw materials have stabilized at low levels, meanwhile the real effect of ECB monetary policy is more likely to occur in the second half-year or later. Internal factors, such as the increase in labour costs, should not pressurize prices due to gradual growth of wages.
The policy of the European Central Bank aimed at stimulating the economy. Due to continuous quantitative easing in the banking system, crediting provisions will become, likely, even more favourable, when the banks start “employing” money more actively; however, the issue of its sufficiency for stimulating the demand of lent money among consumers is in obscurity.
Loan-to-deposit ratio in the banking sector. Deposit amount almost coincides with the portfolio of loans granted by banks (excl. government and financial sectors); it means that banking sector has become rather balanced. Especially low deposit interest rates constantly promote households look for alternative saving and investing possibilities. It is possible to 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.
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. The main causes, which have led to lower liquidity outcome of RE market:
The liquidity rate of new construction apartments in Vilnius, calculated by “Inreal”, has stabilized at 1.5-1.6. If similar sales rates remain, this rate should not change significantly in the next quarter. 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 in Vilnius:
It is observed that the commercial segment receives much more attention in 2015 - market of the capital city, in particular; 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, although in some certain cases, the owners of vacant warehouses were willing to negotiate and agree on prices less than the market price; however, such single cases did not affect the general average price. 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.
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. It must be noted that in the absence of express agreement a tenant has a risk of not receiving the desired property, losing the payments made and end up with a potential dispute in court.
ALL ECONOMIC AND RE MARKET REPORT 2015 Q1 (.PDF)