Modest house price rises in Lithuania
Lalaine C. Delmendo | March 04, 2019
In Q3 2018, the total number of residential property transactions was at its highest level in over a decade, according to OberHaus. However house prices are still well below pre-crisis levels.
All Lithuanian major cities saw strong to modest house price rises during the year to January 2019:
- In Vilnius average apartment prices rose by 3.2% y-o-y in January 2019, to €1,515 per square metre (sq. m.). When adjusted for inflation, prices in the capital city increased 1.38% over the same period.
- In Kaunas, apartment prices rose by 4.3%, to an average of €1,077 per sq. m. (increased 2.51% after inflation)
- In Klaipėda, apartment prices rose by 3.5%, to an average of €1,075 per sq. m. (increased 1.8% after inflation)
- In Šiauliai, apartment prices rose strongly by 8.5%, to an average of €667 per sq. m. (increased 6.6% after inflation)
- In Panevėžys, existing flats soared by 11.3%, to an average of €645 per sq. m. (increased 9.4% after inflation)
The number of houses sold rose by 3% y-o-y in Q3 2018, while apartment sales increased 4%, according to the State Enterprise Centre of Registers.
Residential construction activity is also rising. In 2018, dwelling permits rose by 3.1% y-o-y to 16,658 units while dwelling completions increased 10.9% to 12,244 units, according to Statistics Lithuania.
Almost all Lithuanian dwelling stock is in private ownership (98%).
There are virtually no restrictions in foreign ownership of land in Lithuania, except for agricultural lands.
Lithuania's economy grew by a healthy 3.6% in 2018, after expanding by 3.9% in 2017 and 2.3% in 2016, according to Statistics Lithuania. However, the economy is expected to slow this year, with projected GDP growth rate of 2.8%, amidst weaker external demand, uncertainty surrounding the Brexit and international trade constraints, according to the central bank.
Lithuania joined the eurozone in January 1, 2015.
Prices are rising in Vilnius; rental yields are moderately good at around 5.5%
In Vilnius, rental yields are about the same this year as two years ago, or maybe just a little lower. Gross rental yields on apartments both in the city centre and in the suburbs are around 5.5%. These are moderately good yields. For the very smallest apartments, yields would be somewhat higher, at around 6.1%.
After collapsing during 2008-2010, prices in Vilnius have seen a U-Curve: now, Vilnius house prices continue to rise.
Prices of old, but fully refurbished apartments located in Vilnius´ city centre and old town range from EUR 1,950 to EUR 2,200 per square metre (sq. m.).
This means that a 120 sq. m. in the city centre costs on average EUR 260,000, whereas in the suburbs, it costs on average EUR 220,000. Suburban prices have been increasing, especially for larger, more luxurious houses.
Rental rates are somewhat lower in the suburbs. Rents in the centre are around EUR 9-10 per sq. m. per month, while in the suburbs rents are around EUR 7-8 per sq. m. per month.
A 120 sq. m. apartment in the centre could be rented out for around EUR 1,160 per month while in the suburbs, a 120 sq. m. apartment fetches around EUR 850 per month.
Round trip transaction costs are very low in Lithuania. See our Property transaction costs analysis for Lithuania and Property transaction costs in Lithuania, compared to the rest of Europe.
Medium to high taxes in Lithuania
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 of the spouse and children are exempt from inheritance tax.
Residents: Residents are taxed on their worldwide income. Residents are entitled to a basic non-taxable allowance as well as other deductions.
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 2.295% to 4.61%. However, buildings sold within 24 months of completion are subject to 21% VAT. The seller typically pays the real estate agent’s fee, which ranges from 1.5% to 3%, plus 21% VAT.
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.
Modest economic growth; sustainable public financesLithuania is the most populous and largest of the Baltic States, with a population of around 2.78 million in 2018. Following independence from the USSR in 1990, Lithuania emerged as a successful transition state, becoming one of Europe’s fastest growing economies. Lithuania joined NATO and the EU in 2004.
After average growth of 8.2% from 2001 to 2007 the economy began to slow in 2008, due to contagion from the global financial meltdown. In 2009, the Lithuanian economy shrank by almost 15%, the worst recession in the EU, largely due to the bursting of the property bubble, higher tax rates, the end of cheap money and a huge contraction in exports.
In 2010 the economy finally emerged from recession, with GDP growth of 1.6%.
Then in 2011 the Lithuanian economy began to expand strongly, with real GDP growth of 6.1%, the second fastest pace in the EU. The economy expanded by an average of 3.6% annually from 2012 to 2014. However in 2015, economic growth slowed to 2%, the slowest growth since 2010, due to sluggish investment and decline in exports to Russia, the country’s largest single trading partner.
In 2018, Lithuania’s economy expanded by a healthy 3.6%, according to Statistics Lithuania, from expansions of 3.9% in 2017 and 2.3% in 2016.
However, the economy is expected to slow this year, with projected GDP growth rate of 2.8%, according to the central bank.
“The growth will be slowed down by weaker external demand. Uncertainty about Brexit, international trade constraints and slower than current growth of the main Lithuania’s trade partners are among the main risk factors as regards economy growth this year,” said Darius Imbrasas, senior economist at the Bank of Lithuania.
Nationwide unemployment stood at 6% in Q4 2018, slightly up from 5.9% in the previous quarter but down from 6.7% in the same period last year, according to Statistics Lithuania.
Inflation eased to 1.7% in January 2019, down from 1.9% in December 2018, 2.5% in November and 2.9% in October. Inflation is expected to slow to 2.2% this year, from 2.5% in 2018 and 3.7% in 2017, according to the European Commission.
In 2018, Lithuania recorded a budget surplus of about 0.6% of GDP, up from surpluses of 0.5% in 2017 and o.3% in 2016 and deficits of 0.2% in 2015, 0.6% in 2014 and 2.6% in 2013.
During the global crisis, the deficit ballooned to 9.4% of GDP in 2009, and remained high in 2010 at 7.2% of GDP, and 8.9% in 2011. Then in 2012, Lithuania adopted a budget that would narrow the public sector deficit to 3.1% of GDP, in a bid to join the eurozone.
Government debt was equivalent to around 37% of GDP in 2018, down from 39.7% in 2017, 40.1% in 2016, 42.6% in 2015 and 40.5% in 2014, and well below the 60% threshold.
Lithuania joined the Euro on January 1, 2015, the bloc’s 19th member. The Litas, which had been pegged to the Euro for a decade, went out of circulation.