RE Market: Economic growth in 2012 provided momentum to activity in the RE market

On 3 March 2013, Inreal Group, together with its
partners the bank Finasta and the law offices Raidla Lejins & Norcous,
presented the 2012–2013 Lithuania’s Economy and Real Estate (RE) Market Review.
The publication says that a rapid growth of the country’s economy provided
positive incentives in the real estate market, in which high level of activity
was observed across every segment. In the area of RE law and taxes, the energy
performance certificate and changes in land taxation arrangements were
introduced.

According to Rūta Medaiskytė, Chief Economist at the
bank Finasta, the growth of Lithuania’s economy was one of the fastest in the
region and should also maintain the same pace this year. 2012
was a turbulent period for the global financial markets; however, the annual
rate of return on shares finally proved to be positive, while the amount of
Lithuanian household funds in the form of deposits reached its historic highs –
almost LTL 27 billion – at the year end. The economic crisis intimidated the population, and
cautious expectations about the future made them plan their expenses. So, regardless of low return, the population opted to have
liquid and safe funds. “Lithuania’s GDP is expected to grow by 3.0 per
cent and to retain immunity against recession in the euro zone. In the
long-term outlook the fullest possible development of economy is desirable, but
this can only happen given recovery in external markets,” commented Ms.
Medaiskytė.

“In 2012
Lithuania’s housing market was conspicuous by its activity and a growing number
of sale and purchase deals – both developers and buyers were active in the
market for apartments,” said Arnoldas Antanavičius, Head of Consultancy and
Analysis Department of “Inreal valdymas”. According to him, there was an
increase in the number of investor buyers, who purchased real estate properties
for the purpose of RE lease. In 2012, apartment sale and purchase deals in
Lithuania totalled 21 656, which is 6.8 per cent more than in 2011. During
the year, apartment sales were renewed or launched in Vilnius, Kaunas and
Klaipėda even in 55 projects and resulted in the addition of 3 067 new
apartments to the primary housing market – a number even 60 per cent higher
compared to 2011. The sales of private houses continued to grow for a fourth
year in a row. During the year, 10 205 deals of sale of private houses
were concluded in Lithuania, which is 15 per cent more than in 2011. The market
for land plots also retained its growth tendencies – 32 228 land sale
deals were recorded across Lithuania in 2012, which is 7.5 per cent more than
in 2011. The analysts of Inreal forecast that given a continued growth of the
country’s economy, the housing sector should perform positively in terms of an
increased number of deals and (in certain segments) price increases.

In the sector
of business centres the largest degree of activity in 2012 was observed in
Vilnius, where construction of new business centres significantly intensified
after a few years’ break. Despite the addition of 21 000 sq. m to the
market of the capital city, the availability of premises for lease in the
capital city further declined. In Kaunas and Klaipėda the segment of business
centres remained only slightly active – no modern business centre was opened.
In 2013 the market for business centres in the capital city should remain the
most active:  the demand for modern
office premises will rise, and new projects will push up rent levels. 2012 was
a year of hope for the country’s logistic facilities: the space of available
vacant premises shrank; rent levels rose by 5–10 per cent on the average.
Although vacancy rates remained particularly low for a second consecutive year,
very little construction of storage facilities intended for lease was
undertaken. Due to high demand, 2013 should see a continued growth of rent
levels. This will promote the development of new projects.

In 2012, the
country’s tourism sector continued to perform excellently. Due to consistently
growing flows of foreign tourists performance indicators of airports and hotels
soared to their historical highs. In 2013 such consistent development of the
sector should continue, attracting increasingly more attention of foreign
investors. It is likely that we may see new international hotel chains entering
Lithuania’s market, which would further contribute to the development of the
sector.

“Last year, similar to 2011, no material changes
occurred in legal regulation that would be capable of facilitating
substantially real estate acquisition, development or sale procedures. Quite
much attention was given to amendments to legislation governing legal relations
of construction, including the implementation of European Union directives,”
stated Aušra Mudėnaitė, partner at the law offices Raidla Lejins & Norcous.
One of the changes that is particularly relevant for RE market players is that
since 9 January 2013 the energy performance certificate has become mandatory
for all buildings and premises available to buy or rent. In addition, RE
developers should pay attention that since 2012 documents authorising
construction are again issued for a fixed term, and the technical supervisor of
construction works is required to take out third party liability insurance.

As regards taxes, major changes are related to
variations of land taxation arrangements. On 1 January 2013, a new wording of
the Law on Land Tax entered into force, providing that from now on the value of
land for tax purposes is linked to the average value of land on the market
rather than land capability rate. Besides, in place of the currently applicable
tax rate of 1.5 per cent legal acts provide for the right of municipal councils
themselves to set a tax rate or rates within the range between 0.01 and 4 per
cent, as defined by the Law.

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