Lithuania: Overview

RENTAL YIELDS

Last Updated: Aug 12, 2009

Still low at around 4.44%

Despite the crisis, gross rental yields on apartments in Vilnius remain low, at around 4.44%. These yields are slightly higher than the 2008 Global Property Guide figures, but the difference is marginal. It seems that the recession has been shrinking rents, along with “for sale” asking prices, making property investment unattractive.

Suburban apartments have about the same level of yields, at around 4.38%. The suburban apartment property sizes we surveyed were 35, 75 and 120 square metres (sq. m.), with prices ranging from €56,560 to €239,280, respectively.

People often write in to ask, when will the residential property markets in the Baltics recover? We can only say, this is not the stuff of which property recoveries are made. Not yet, anyway. The usual pattern is that economic activity begins to rise, leading to rising rents, and then the property market begins to regain confidence. This nirvana for investment property is a long way off in the Baltics.

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TAXES AND COSTS

Last Updated: Aug 11, 2008

Medium to high taxes in Lithuania

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	2.9%	4.3%	4.9%
Click here to see a worked example
Source: Disclaimer

Rental Income: Rental income tax is moderate at 15% of the gross income.

Capital Gains: Capital gains are treated as ordinary taxable income.

Inheritance: The inheritance tax rate is 5% for property up to LTL500,000 (€144,810). Otherwise, the tax rate is 10%.

Residents: Residents are entitled to basic non-taxable allowance at €1,112 a year as well as other deductions.

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BUYING GUIDE

Last Updated: Dec 03, 2007

Transaction costs are low
in Lithuania, except for new buildings

Roundtrip transaction costs, i.e., the cost of buying and selling property, are generally low at 2.3 - 5%. However, buildings sold within 24 months of completion are subject to 18% VAT. The seller typically pays the real estate agent’s fee, which ranges from 1.5% to 3%, plus 18% VAT.

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LANDLORD AND TENANT

Last Updated: Jul 05, 2006

Lithuania law is mildly pro-tenant

Rent: Rents can be freely negotiated between landlord and tenant. If the tenant cannot agree the renewal terms with the landlord, he may go to court for arbitration of the amount of rent.

Tenant Security: Upon expiration of a contract the tenant has the ‘priority right’ to renew for a new term, which will be for twelve months.

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ECONOMIC GROWTH

Last Updated: Feb 05, 2009

Inflation, budget deficit
and recession woes pile up

Lithuania is the most populous and largest of the Baltic States, with a population of 3.4 million. Following independence from USSR in 1990, Lithuania emerged as one of the most successful transition states coming from the Third Wave (of democratization). With its ascension to EU and NATO in 2004, Lithuania strengthened its economic prospects.

Lithuania became one of Europe’s fastest growing economies after an economic recession in 1999. Average annual GDP growth from 2000 to 2006 was 7.3%, including an impressive 10.3% economic expansion in 2003. After growing by more than 7% from 2004 to 2006, GDP growth reached 8.8% in 2007.

GDP per capita rose to around US$11,350 in 2007, rising 77% in real terms from its level in 2000. Unemployment dropped from 17.4% in 2000, to 4.3% in 2007. Real wages rose 8% in 2005, 13% in 2006 and 15% in 2007.

However, the economy slowed in 2008, with annual GDP growth falling from 7% in Q1 to 2.9% in Q3. By the fourth quarter of 2008, GDP contracted by 1.5% compared to the same quarter in 2007. Lithuania is expected to officially enter recession in 2009, with the economy contracting by as much as 3.5%.

The slowdown pushed unemployment up to 8.0% by December 2008, from just 4.3% a year earlier. During the boom, Lithuania had successfully reduced unemployment from 17.4% in 2001.

Annual inflation has been accelerating since 2004, reaching 8.2% in 2007, the highest level in a decade. From 1999 to 2003, prices barely increased, with average annual inflation of only 0.38%.

The level of inflation is well above the Maastricht Treaty’s criteria for countries applying to adopt the euro.

Similar to other countries with currencies pegged to the euro, Lithuania has surrendered its ability to raise interest rates to control inflation. To maintain the peg, European Central Bank interest rates are mirrored in Lithuania.

The government has no option but to spend less to bring down inflation. In November 2007, the government passed the Fiscal Discipline Law mandating that starting 2008, its fiscal deficit cannot exceed 0.5% of GDP.

Despite this, the budget deficit in 2008 was 0.9% of GDP, above the government’s goal, but lower than the 1.3% GDP deficit reached in 2007. Inflation remained high at 11.3%.