Lithuania's housing market remains robust
Lalaine C. Delmendo | July 11, 2021
All Lithuanian major cities saw strong to modest house price rises during the year to February 2021:
- In Vilnius average apartment prices rose by 5.7% y-o-y in February 2021, to €1,728 per square metre (sq. m.). When adjusted for inflation, prices in the capital city increased 5.1% over the same period.
- In Kaunas, apartment prices rose by 3.8%, to an average of €1,209 per sq. m. (increased 3.2% after inflation)
- In Klaipėda, apartment prices rose by 4.5%, to an average of €1,192 per sq. m. (increased 3.9% after inflation)
- In Šiauliai, apartment prices rose strongly by 7.8%, to an average of €809 per sq. m. (increased 7.2% after inflation)
- In Panevėžys, existing flats soared by 7.9%, to an average of €794 per sq. m. (increased 7.2% after inflation)
The residential construction sector is resilient. During 2020, dwellings permits were more or less steady at 15,155 units while dwelling completions rose by 10.6% to 13,903 units, according to Statistics Lithuania.
Almost all Lithuanian dwelling stock is in private ownership (98%).
Demand slowed last year due to pandemic-related lockdowns and travel restrictions. In 2020, residential property transactions in Lithuania fell by 8.5% y-o-y to 32,966 units, according to figures from the State Enterprise Centre of Registers. In Vilnius, transactions also dropped 14% y-o-y to 4,773 units last year.
There are virtually no restrictions in foreign ownership of land in Lithuania, except for agricultural lands.
During 2020, Lithuania's economy contracted only slightly by 0.9% from a year earlier – the least among the Baltic countries, and probably the lowest in the EU. The economy is expected to expand by a modest 2.1% this year and by another 3.1% in 2022, according to the European Commission.
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.
Mild economic recessionDuring 2020, Lithuania’s economy contracted only slightly by 0.9% from a year earlier – the least among the Baltic countries, and probably the lowest in the EU.
“Lithuania’s milder recession reflects a relatively well-controlled pandemic, and low direct exposure to tourism (less than 2.0% of GDP, World Trade Tourism),” said Fitch Ratings. “Resilience in the export sector, particularly demand for low-valued goods and transportation services, also helped cushion the economic fallout.”
The economy is expected to expand by a modest 2.1% this year and by another 3.1% in 2022, according to the European Commission.
The financial crisis of 2008-9 brought to an end years of amazing average growth of 8.2% from 2001 to 2007. The economy slowed in 2008, and shrank by almost 15% in 2009.
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.
The Lithuanian economy strengthened again in recent years, growing by an annual average of 4.2% in 2017-19, before the coronavirus.
Unemployment was 9% in Q4 2020, down from 9.3% in the previous quarter but still up from 6.4% in the same period last year, according to Statistics Lithuania.
Annual inflation increased to 1.6% in March 2021, up from 0.6% in the previous month and the highest level since March 2020. Inflation is expected to accelerate to 1.7% this year, after slowing to just 1.1% last year amidst the pandemic, according to the European Commission.
In 2020, Lithuania recorded a budget deficit of 7.4% of GDP, in contrast to a surplus of 0.5% of GDP in 2019, mainly driven by a surge in government spending to fight the pandemic, according to Eurostat. This breaks the country’s four consecutive years of surpluses and its biggest shortfall since 2011.
The deficit is projected to increase further to about 8.1% of GDP this year, as more than €500 million in additional funding will be allocated for pandemic response. Under the government’s Stability Program approved in late April 2021, a total of €1.6 billion is allocated this year for coronavirus-related measures.
Government debt was equivalent to around 47.3% of GDP in 2020, sharply up from 35.9% of GDP in 2019 and 33.7% in 2018. Debt is expected to increase further to about 52.9% of GDP this year.
Yet the increased debt level is not a cause for alarm. “Despite a higher debt level, debt sustainability remains underpinned by falling interest costs, a decline in foreign-currency exposure, and highly favourable financing conditions supported by the ECB’s asset purchasing programmes,” said Fitch Ratings.
“A pre-Covid-19 track record of fiscal surpluses, credible policy framework and high governance indicators, supports our expectation that Lithuania will return to fiscal consolidation policies once the impact of the pandemic subsides,” Fitch Ratings added.
The country’s new centre-right coalition government led by Prime Minister Ingrida Šimonytėis expected to continue an agenda consistent with pro-EU and NATO policies.