Lithuania’s housing market remains robust, despite an expected economic slowdown this year due to the Russia-Ukraine war.

The five major cities’ apartment price index (covering Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys) rose by 21.15% during the year to Q1 2022, according to Ober Haus Real Estate Advisors. However in real terms, apartment prices actually increased by a more modest 4.7% over the same period.

Source: Ober Haus Real Estate Advisors

Soaring inflation is the culprit for the huge difference between the nominal and real figures. In May 2022, nationwide inflation climbed 18.9% - the highest since September 1996, mainly driven by a steep increase in global commodity prices.

On a quarterly basis, nationwide apartment prices rose by 3.24% but actually declined by 3.02% after inflation.

All Lithuanian major cities saw strong nominal house price rises during the year to Q1 2022:

• In Vilnius average apartment prices surged by 22.2% y-o-y in Q1 2022, to €2,158 per square metre (sq. m.). When adjusted for inflation, prices in the capital city increased 5.59% over the same period.
• In Kaunas, apartment prices rose strongly by 23.1%, to an average of €1,506 per sq. m. (increased 6.37% after inflation)
• In Klaipėda, apartment prices rose by 18.05%, to an average of €1,429 per sq. m. (increased 2% after inflation)
• In Šiauliai, apartment prices rose by 16.6%, to an average of €969 per sq. m. (increased by a miniscule 0.8% after inflation)
• In Panevėžys, prices of existing flats were up by 15.3%, to an average of €938 per sq. m. (fell slightly by 0.34% after inflation)

Demand is rising strongly. During 2021, there were 39,849 residential property transactions in Lithuania, up 21% from a year earlier and by 11% from two years ago, according to figures from the State Enterprise Centre of Registers. Almost all major cities saw double-digit increases in home sales last year.

Residential construction activity is mixed. During 2021, dwelling permits surged by 30% y-o-y at 19,480 units while completions fell by 21.1% y-o-y to 10,951 units, based on figures from 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.

During 2021, Lithuania’s economy rebounded strongly from the Covid-19 pandemic, with real GDP expanding by 5% from a year earlier, following a slight contraction of 0.1% in 2020. However, the economy is expected to slow again this year with a projected growth of 1.7%, mainly due to Russia’s invasion of Ukraine, according to the European Commission.

Lithuania joined the eurozone in January 1, 2015.

That crazy housing boom and bust

Before the global crisis, Lithuania saw enormous house price increases. The average price of old apartments in Central Vilnius rose 275% between 2002 and 2006. This included a house price surge of 28% in 2003, 29% in 2004, 45% in 2005 and 56% in 2006.

Residential property prices in the capital started to decline in 2008, after the global credit crunch. House prices plunged by 15.2% (-21.9% inflation-adjusted) in 2008 and by another 26.8% (-27.8% inflation-adjusted) in 2009. Then the housing market showed some signs of improvement, with prices falling by just an average of 1.8% (4.9% inflation-adjusted) annually from 2010 to 2012.

In 2013, the property market finally recovered and house prices have been rising modestly since then. From 2014 to 2020, house prices increased by 29.6% (16.9% inflation-adjusted).

During 2021, house prices rose strongly by 22.4% (10.7% inflation-adjusted), amidst improved economic conditions.

Demand rising strongly

During 2021, there were 39,849 residential property transactions in Lithuania, up 21% from a year earlier and by 11% from two years ago, despite the pandemic, according to figures from the State Enterprise Centre of Registers.

In major cities:

• In Vilnius, 7,069 homes (excluding townhouses) were sold last year, up by a whopping 48% from the previous year and 28% higher than in the record-breaking 2019, according to Inreal’s Lithuanian Economic and Real Estate Market Report 2021-2022.
• In Kaunas, 1,070 new units were sold in 2021, up by 47% from a year earlier and by 28% from two years ago.
• In Klaipėda, 430 new housing units were sold in 2021, 21% higher than the previous year and 11% up from 2019.
• In Palanga and Šventoji, 466 new units were sold during 2021, up by 12% from a year earlier and by 94% as compared to 2019.

Residential construction activity mixed

Residential construction activity showed mixed results. During 2021:

• The number of dwellings for which building permits were granted surged last year by 30% y-o-y at 19,480 units, based on figures from Statistics Lithuania.
• Dwelling completions fell by 21.1% y-o-y to 10,951 units.

During the 1980s, when the country was still socialist, more than 20,000 dwelling units were built annually.

Completions dropped to less than 5,000 annually between 1998 and 2003, leaving a huge, pent-up demand.

As the economy gathered steam, housing construction accelerated:

• In 2004-2006 dwellings completions rose to an average of 6,700 yearly
• In 2007, there were 9,286 completed dwellings
• In 2008 dwelling completions rose to 11,286, the highest since 1992

Then suddenly things stalled. Completions averaged just 5,500 units annually from 2010 to 2014.

Construction activity started to recover in 2015. Dwelling completions averaged 12,000 units annually from 2015 to 2021.

Currently, there were a total of 888,313 apartments units in Lithuania in 2021, according to the State Enterprise Centre of Registers.

Low interest rates

The average interest rate for new housing loans was 2.05% in April 2022, down from 2.18% in April 2021 and 2.3% two years ago, according to Bank of Lithuania.

For new loans:

• The average interest rate for new housing loans with initial rate fixation (IRF) of up to 1 year stood at 1.95% in April 2022, down from 2.1% a year earlier and 2.2% two years ago.
• The average rate for new housing loans with IRF of more than 1 year was 4.17% in April 2022, down from 5.96% in April 2021 and 5.39% in April 2020.

For outstanding loans, the average interest rate was 1.96% in April 2022, slightly up from 1.9% in the previous year and 1.86% two years ago.

• Up to 1 year maturity: 4.99%, sharply up from 2.76% in April 2021 and 2.54% in April 2020
• 1-5 years maturity: 5.19%, up from 5.01% a year earlier and 4.31% two years ago
• Over 5 years maturity: 1.95%, slightly up from 1.9% a year earlier and 1.85% two years ago

More than 99% of all housing loans have maturity of over 5 years. All new loans are now in euros. 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.

Mortgage market continues to expand

During 2021, new mortgage loans amounting to €1.98 billion were drawn, up by a whopping 43% from the prior year.

“Mortgage loan volumes increased substantially and reached new heights in Lithuania in 2021,” said Ober Haus. “In the 2019–2021 period, new mortgage loans of €130 million were provided per month on average in Lithuania, which is almost 33% more than in the 2016–2018 period.”

In April 2022, the total housing loans outstanding rose by 12.1% to €10.6 billion from a year earlier, following an increase of 11.6% in 2021 and an annual average growth of 8.2% from 2016 to 2020, according to Bank Lithuania.

The mortgage market reached 18.4% of GDP in 2021, almost back to the 22.4% of GDP it occupied before the 2009 crisis, and up from a mere 0.4% of GDP in 2000. Yet it remains one of the lowest in the European Union.

About 80% of all dwelling purchases are now made with the aid of mortgages, and typically 95% of all property value is granted in loans.

Rental yields are moderate; rents continue to rise strongly

Gross rental yields - the average return on investment - on apartments both in the city centre and in the suburbs are moderate. In Vilnius, rental yields fell slightly from 4.4% in 2020 to 4.2% in 2021, according to Ober Haus’ 2022 Real Estate Market Report for Baltic States Capitals.

Rents are rising, despite the pandemic. During 2021, apartment rents in Vilnius rose strongly by 9.5%, up from the prior year’s 4.7% increase, according to Ober Haus.

“High activity was recorded in the housing rental market in Vilnius in 2021,” said Ober Haus. “Apartment rents increased by 9.5%, after rising 4.7% in 2020. The rental market was regularly supplemented with a large number of offers from private investors, who were very active in buying apartments for rent in new projects. However, the high level of demand managed to successfully absorb the growing supply and rents continued to increase.”

During 2021:

• A typical two-bedroom, existing apartment in Vilnius residential districts rents for €320 to €400 per month, up from €270 to €330 in 2020. A same size new apartment rents for €400 to €530 per month, up from a range of €350 to €470 in the previous year, according to Ober Haus.
• An equipped two-bedroom apartment, either old or new, located in the city centre is offered for €400 to €750 monthly rent, up from €320 to €660 in 2020. For three-bedroom apartments, monthly rents range from €530 to €1,100, up from €420 to €950 in the previous year. Rents for bigger and well-equipped apartments in the Old Town range from €1,300 to €1,500, up from €1,000 to €1,400 in 2020.
• Fully-equipped houses, measuring between 100 to 200 sq. m., situated on the outskirts of Vilnius, are rented out for €750 to €1,500 per month last year, up from €650 to €1,400 per month in 2020.
• In the city centre and the prestigious districts of Valakampiai, Antakalnis, Zverynas, monthly rents are much higher and can vary from €1,200 to €3,500 in 2021, up from €1,000 to €3,000 a year earlier. Rents for bigger houses in the best locations can go as high as €4,000 to €6,000 monthly.

Ober Haus expects the rental market to remain tight this year, amidst strong demand. “Consequently, both in terms of quantity and quality, the rental segment will expand significantly in 2022 and competition between such projects will increase.”

“Given the consequences of the war in Ukraine, Ober Haus expects that overall residential rents in Vilnius will increase faster than the sale prices, i. e. could increase up to 15-20% in 2022.”

Economy slowing, inflation surging

During 2021, Lithuania’s economy rebounded strongly from the Covid-19 pandemic, with real GDP expanding by 5% from a year earlier, following a slight contraction of 0.1% in 2020.

However, the economy is expected to slow again this year with a projected growth of 1.7%, mainly due to Russia’s invasion of Ukraine, according to the European Commission. This is in line with the OECD’s 2022 growth forecast for Lithuania of 1.8%.

“Growth is projected to slow to 1.8% in 2022 and 1.6% in 2023, as the war in Ukraine takes its toll on confidence, weakens external markets and intensifies supply bottlenecks,” said the OECD. “Domestic activity will continue to be supported by solid wage growth, pent-up demand and EU-fund inflows, but high energy prices and increased uncertainty will weigh on private spending.”

The financial crisis of 2008-9 brought to an end to 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.

In 2021, Lithuania’s budget deficit fell to 1% of GDP, a sharp improvement from the prior year’s 7.3% shortfall, amidst better-than-anticipated revenue performance, according to Eurostat.

However, the deficit is expected to increase again and reach an equivalent of 4.9% of GDP in 2022 – higher than the initial estimate of a 3.3% shortfall – due to increased government spending “to mitigate the consequences of inflation and strengthen energy independence, to provide aid to war refugees, and to maintain critical national infrastructure and security”, according to Finance Minister Gintarė Skaistė.

The country’s gross public debt was equivalent to around 44.3% of GDP in 2021, down from 46.6% in the previous year and 35.9% in 2019. Debt is expected to fall slightly to about 42.7% of GDP this year, according to the European Commission. 

The labour market has returned to its pre-pandemic levels. In Q1 2022, unemployment rate fell to 6.3%, down from 7% in the previous quarter and 7.5% a year earlier, according to Statistics Lithuania. It was the lowest level since Q3 2019.

However, consumer prices are skyrocketing. In May 2022, nationwide inflation soared 18.9% - the highest since September 1996, amidst surging global commodity prices. Inflation is expected to accelerate to 12.5% this year, following 4.6% in 2021 and 1.1% in 2020, according to the European Commission.

Sources:

• Baltic Real Estate Market Report 2022 (Ober Haus): https://www.ober-haus.lt/wp-content/uploads/Ober-Haus-Market-Report-Baltic-States-2022.pdf
• Ober-Haus Lithuanian apartment price index (OHBI) March 2022 (Ober Haus): https://www.ober-haus.lt/wp-content/uploads/OHBI-March-2022.pdf
• Lending rates (Bank of Lithuania): https://www.lb.lt/en/lending-rates-1
• MFI balance sheet and monetary statistics (Bank of Lithuania): https://www.lb.lt/en/mfi-balance-sheet-and-monetary-statistics-1
• Lithuanian Economic and Real Estate Market Report 2021 – 2022 (In Real): https://www.inreal.lt/file/2/1/5/8/2021-2022_Lithuanian-Economic-and-Real-Estate-Market-Report_INREAL-Siauliu-bankas-COBALT-Citynow_compressed%20%281%29.pdf

• Economic forecast for Lithuania (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/lithuania/economic-forecast-lithuania_en
• Prices are rising in Vilnius; rental yields are moderately good at around 5.5% (Global Property Guide): https://www.globalpropertyguide.com/Europe/Lithuania/Rental-Yields
• Unemployment rate (Statistics Lithuania): https://osp.stat.gov.lt/statistiniu-rodikliu-analize?hash=2de50aad-f40a-4b54-9e38-b93a60f424a1#/
• Lithuania Economic Snapshot (OECD): https://www.oecd.org/economy/lithuania-economic-snapshot/
• Lithuania’s budget deficit to reach 4.9 percent of GDP in 2022 – minister (LRT): https://www.lrt.lt/en/news-in-english/19/1671297/lithuania-s-budget-deficit-to-reach-4-9-percent-of-gdp-in-2022-minister
• Fitch Affirms Lithuania at ´A´; Outlook Stable (Fitch Ratings): https://www.fitchratings.com/research/sovereigns/fitch-affirms-lithuania-at-a-outlook-stable-17-12-2021