30 January 2020: In 2019, the real estate (RE) market of Lithuania broke the former activity records, reaching the highest number of housing transactions in 10 years. In the new housing segment, the rates of liquidity, sales and development were extremely high. All the current supply in Vilnius and Kaunas could be sold in 11 months, while in Klaipėda it could be sold in 18 months. The low profitability of alternative investment items was very significant for the attractiveness of RE, not only in the housing sector but also in terms of commercial real estate. .
“In the first three quarters of 2019, the economic growth of Lithuania was the fastest in the Baltic States and surpassed the growth rate of the EU by almost 3 times. The confidence of the consumers and their expectations ensured the growth of the domestic demand, while the productivity-boosting industrial investments allowed the number of exports to grow steadily, in spite of the slowing throughout the world. The optimism in Lithuania was supported by rising income and the increase of new jobs. Due to the country’s positive economic development, the net migration numbers in Lithuania were positive last year for the first time in recent decades. Although we are expecting a slower economic growth in the country this year, it will still remain relatively high and one of the fastest among the developed countries,” stated Tomas Kipišas, Head of Saving and Investment Products at Šiaulių bankas.
The housing market. The sales in Vilnius’ primary housing market grew by 43%, where a record number of 5,540 apartment transactions were made. “The capital’s primary housing market has made an incredible leap, denying all the previous forecasts. Because of this fast-growing demand, the builders have also stepped up and offered the market 15.8% more housing options than in 2018,” said Kotryna Griško, Real Estate Analyst at the Inreal Group. According to her, the economical class of housing is attracting buyers once again, since the differences between the economical and the mid-range housing quality are gradually decreasing as a result of the growing energy efficiency requirements. Meanwhile, in the prestigious housing segment, an oversupply can be observed. In the primary market, about one-third of the supply consists of prestigious housing, while its sales only make up about a quarter of the total amount. “The developers’ plans for 2020 are no less impressive, but they might need to be ‘trimmed’ due to the decreasing profitability, because of the increase of the construction costs and interest, and the existing ‘warehouse’ may limit the growth of the prices of new housing projects,” said K. Griško.
Kaunas’ primary housing market has surprised everyone with its growth. The former record was also broken here, and agreements on 835 new apartments have been completed, which is 60% more than during the same time last year. The developers have kept supplying the market with new housing projects and offered 17.4% more apartments than last year, or about 820 properties. In 2019, mid-range apartments made up the largest part of the new supply. Accordingly, this segment has attracted greater attention from buyers and sales of the mid-range apartments accounted for 37% of the market in 2019. On the other hand, the majority of Kaunas’ residents are still interested in economical class housing.
Even though the growth of Klaipėda’s primary housing market was a bit more modest, even here a record amount of 386 agreements were made, which is 18% more than last year. Meanwhile the RE developers in the port city could not catch up with the rapidity increasing demand and only offered 330 new apartments last year, which was 24% less than in 2018.
The activity of the primary housing market in Palanga started to fade in early 2019, and the results for the year did not surpass the results of 2018. In this city, agreements for 240 new apartments were made, or 10.8% less than in 2018. Meanwhile, the market of Neringa was a lot more active and 89 new apartment agreements were made (a 2.5% increase) while the RE developers offered 98 new apartments, which was 2.8 times more than in 2018.
Commercial RE. In 2019, 4 business centres opened their doors in Vilnius – 6 in Kaunas and 1 in Klaipėda. Vilnius has successfully absorbed the new supply, while the developers in Kaunas and Klaipėda should wait a bit until the vacancy rates decline. In the shopping mall segment, the most important task is addressing the competition with online stores. The need for storage spaces has remained high, because, in spite of the newly-opened objects, the country has a generally low vacancy in logistics centres. In Lithuania, hotel developments were active not only in the big cities but also in the smaller towns. “In spite of the favourable economic circumstances for RE, every sector faces its own challenges. While the buyers are happy with the higher returns, the developers face increased interest rates, which has a significant impact on the initial development plans. To sum up 2019, the motto for the next few years could be: ‘The good projects will succeed, but not all projects are good.’” said Tomas Sovijus Kvainickas, RE Analyst at Inreal.
Although last year, the real estate legislation was less active than the real estate transaction market, it faced some changes as well. One of the most important legislative acts was the Special Land Use conditions act, which entered into force at the start of the new year. It sets out some new rules for setting, applying and publicising special land-use conditions. While these seem clear enough, there are a lot of questions on how to put them into practice. Meanwhile, there were still no breakthroughs when it comes to other questions that are important to the RE market participants. One of the most important of those questions is one regarding the clarity of the state-owned land lease legislation, which reflects the unified position of the state. "Looking ahead to 2020, given that this is an election year, we should traditionally expect more initiatives in the legislative process. We can foresee some active debates regarding the questions that matter to RE developers, such as those regarding project coordination, and the relationship between developers and the public. On the other hand, we are forced to keep waiting for the initiatives that will address the key real estate market issues, such as the aforementioned state-owned land lease act, and the communication between the institutions that take part in interinstitutional territory planning and building processes, as well as some other questions,” said Liucija Bitinaitė, Associate Lawyer and a member of the Real Estate and Infrastructure Practice Group at COBALT.
INREAL is a trademark 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 Lithuania. Currently they have over 90 employees working for them in 11 cities in Lithuania. The company has engaged in business operations for 25 years and implemented more than 50 real estate projects of various purposes, which received recognition and awards at contests not only in Lithuania but on an international scale as well. Four years in a row INREAL Group was named as the National Winner during the prestigious European Business Awards.
Founded in 1992 Šiaulių Bankas is the biggest Lithuanian capital share bank, stably and constantly growing financial partner focusing on business and consumer financing solutions. Šiaulių Bankas services its customers in 60 customer service points operating in 37 cities and towns throughout Lithuania. The Bank's shares are quoted on the Official List of the NASDAQ Baltics. According to Mystery Shopper Survey conducted by “Dive Lietuva” in 2018 and 2019, Šiaulių Bankas is the first in Lithuania by the customer service quality.
COBALT is a six-time winner of the Baltic Law Firm of the Year award. COBALT lawyers are consistently ranked highly by the most prestigious legal directories, such as Chambers Global, Chambers Europe, The Legal 500, and IFLR 1000. COBALT was recognized as the Most Innovative Law Firm of the Year 2019 in the Baltics at the IFLR European Awards ceremony in London. COBALT won the CEE Legal Matters Deal of the Year award for Estonia, Latvia, and Lithuania, as well as the overall Baltic Deal. Over 190 lawyers provide integrated services to local, regional and international corporations, foundations, credit institutions, companies and individuals across all areas of business law.