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Lithuania: Overview

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Last Updated: Mar 12, 2007

Lithuania is an exception

House prices are still rising in Vilnius, the capital of Lithuania. “Everything is growing - prices, construction costs, mortgage rates,” says a friend of the Global Property Guide based in Vilnius (August 2007).

“But still demand is high. Activity is very high. Some new apartment projects are selling well, even for quite high prices. Even though it is summer now, supply is still not increasing, and the inventory almost unchanged.

“We have some 2500 new apartments on the market in Vilnius. But in fact, this is big number only when you don't go into details. When you try to find a really good and affordable flat, there is almost nothing you would consider worth buying. Either you find luxurious and pricey apartments, or there are only the very worst variants left – on the first floor, with bad planning, or on the North side, or bad quality.”

Nevertheless our impression is that for most sizes of apartments, the price rises have been slowing the past year, except on the very smallest 1-room apartments (see also In real’s prices).

It will certainly be surprising if a slowdown doesn’t now occur, given the significant rise in one year-mortgage rates. Interest rates have moved sharply up, from a low of 3.43% on loans under 1-year in August 2005, to 5.8% today (August 2007).

On February 2, 2002, the Lithuanian Litas was associated with the Euro at 3.4528 to 1. This rate is not expected to change until the litas is replaced by the Euro, on January 1, 2010 at the earliest. Since June 28, 2004, the litas has been fixed to the ERM, the EU’s exchange rate mechanism.

Rents have continued to move slightly down.

Lithuania’s rapid economic growth has been pushing prices up, although somewhat slower than Estonia and Latvia’s growth. Also positive was entry into the European Union in 2004.

There is still a real housing shortage. The average per capita dwelling area is only 40% of the EU average. More than half of Lithuanians (57%) say they are 'unsatisfied' with their housing conditions.

The development of the mortgage market has had a significant impact. The maximum lending period is now 25 or 40 years. 80% of all purchases are done with the aid of mortgage loans, and credit may be granted for up to 95% of a property’s value. Yet mortgage loans in Lithuania account for only 1.4% of annual GDP, compared to the EU average of 48%.

There are virtually no restrictions on foreign ownership of properties and land in Lithuania.

RENTAL YIELDS

Yields are lowish in Vilnius

Vilnius gross rental yields are low, at around 4% - 5%, due to past appreciation of property prices and to the fact that rents have not been rising as fast as prices. Unusually, suburban houses yield rather more, at around 6.3% to 7%.

Read Rental Yields  »

TAXES AND COSTS

Income tax can be avoided in Lithuania

Rental Income: Rental income tax is moderate at 15% of the gross income, with basic non-taxable allowance at €1,112 a year.

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 personal allowances, which are adjusted annually for inflation.

Read Taxes and Costs  »

BUYING GUIDE

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.

Read Buying Guide  »

LANDLORD AND TENANT

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.

Read Landlord and Tenant  »

ECONOMIC GROWTH

Another successful transition in the Baltic

Lithuania, with a population of 3.4 million is the most populous and largest among the Baltic States. Vilnius, the capital of Lithuania, enjoys the rather fascinating distinction of being the geographical center of continental Europe. Although quite far from the sea ports of Lithuania, it is on an important route from the sea country’s main port to Belarus, Russia, and Poland and other mainland European countries.

After its independence from USSR in 1990, Lithuania emerged as one of the most successful transition states coming from the Third Wave (of democratization). Lithuania enjoys an economy unburdened with government restrictions and a stable currency against the Euro.

Lithuania is one of the EU’s fastest-growing economies. GDP growth since 2001 has been an impressive annual 7.5%; in 2006 GDP growth was 7.5%, following 7.6% in 2005. GDP per capita doubled since independence to around US$10,000 in 2007. Inflation was 3.8% in 2006, up on 2005’s level of 2.7%.

With its ascension to EU and NATO in 2004, Lithuania strengthened its economic prospects. However, there are some signs of strain. Latvia and Estonia, the two other Baltic States, are winning out over Lithuania as destinations for Greenfield investment projects. The government’s corruption-ridden bureaucracy and slow decision-making are not attractions.

The mortgage market has been fast developing, the maximum lending period is now 25 or 40 years. 80% of all purchases are done with the aid of mortgage loans, and the development of the mortgage market is having a significant impact on prices. Credit may be granted for up to 95% of a property’s value. Still, outstanding mortgage loans in Lithuania only accounted for 1.4% of annual GDP, compared to the EU average of 48% of GDP.

 

  • Very low transaction costs
  • Low effective rental income tax rates
  • Generally low yields in Vilnius
  • Slighlty pro-tenant market

RESIDENTIAL PROPERTY FACTS
Price (sq.m): €3,792 For a 120 sq. m. property, usually an apartment. Rental Yield: 4.04% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,530 For a 120 sq. m. property. Income Tax: 2.90% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 2.4% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 0.0 Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord & Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.
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