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Financial Information for the Residential Property Buyer


Real property values stable in Lithuania

Last Updated: February 15, 2018

Lithuania house pricesStable is boring, right? Economic growth is up - but not so much. House prices are up - but not after inflation. Yields are OKish - not spectacular. It´s hard to get excited about Lithuania as a residential investment destination.

Lithuania’s five major cities’ apartment price index (covering Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys) rose nominally by 3.57% during 2017, according to OberHaus Real Estate Advisors. However, when adjusted for inflation, apartment prices actually declined by 0.33% y-o-y in 2017.

The difference between the real and nominal trend can be attributed to the rise in inflation during 2017. Inflation accelerated to 3.7% in 2017, sharply up from just 0.7% in 2016 and a deflation of 0.7% in 2015.

Quarter-on-quarter, apartment prices in the country’s five major cities rose by just 0.51% in Q4 2017 (0.1% inflation-adjusted), the lowest quarterly rise since Q4 2015.

Most of Lithuania’s major cities mirror the national trend: nominal prices continue to rise but real values are actually falling.

  • In Vilnius average apartment prices rose by 3.6% y-o-y in 2017, to €1,468 per square metre (sq. m.). When adjusted for inflation, however, prices in the capital city actually fell by 0.33% over the same period.
  • In Kaunas, apartment prices rose by 4.8%, to €1,031 per sq. m. (increased 0.85% after inflation)
  • In Klaipėda, apartment prices increased 2.4%, to an average of €1,037 per sq. m. (but fell 1.43% after inflation)
  • In Šiauliai, apartment prices increased 2.7%, to an average of €612 per sq. m. (but fell 1.13% after inflation)
  • In Panevėžys, existing flats rose by 3.1%, to an average of €576 per sq. m. (but fell 0.81% after inflation)

By property type:

  • Newly-built houses: the average price rose by 9% y-o-y in 2017, to €632 per sq. m., according to the State Enterprise Centre of Registers.
  • Existing houses: the average price rose by 3.6%, to €363 per sq. m.
  • Newly-built apartments: the average price rose by 1.1%, to €1,272 per sq. m.
  • Existing apartments: the average price increased 6.3%, to €793 per sq. m.

In 2017, the total number of property transactions rose modestly by 3% y-o-y to 124,600 units, based on figures from State Enterprise Centre of Registers.

Residential construction activity is mixed. During the first three quarters of 2017, dwelling permits rose by 13.4% y-o-y to 12,743 units while dwelling completions fell by 4.1% to 7,883 units, according to Statistics Lithuania.

Almost all Lithuanian dwelling stock (98%) is in private ownership.

There are virtually no restrictions in foreign ownership of land in Lithuania, except for agricultural lands.

Lithuania’s economy grew by 3.9% in 2017, up from 2.2% growth in 2016 and the fastest pace since 2011, according to Statistics Lithuania. The economy is projected to expand by a modest 2.8% this year, based on government estimates. Lithuania joined the eurozone in January 1, 2015.

That crazy housing boom and bust

Lithuania house price index major cities

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:

  • In 2003, house prices increased 28%
  • In 2004, house prices increased 29%
  • In 2005, house prices increased 45%
  • In 2006, house prices increased 56%

Residential property prices in the capital started to decline in 2008, after the global credit crunch. The housing market has not yet fully recovered since then.

  • In 2008, house prices fell by 15.23% (-21.85% inflation-adjusted)
  • In 2009, house prices fell by 26.84% (-27.77% inflation-adjusted)
  • In 2010, house prices fell by 2.98% (-6.55% inflation-adjusted)
  • In 2011, house prices fell by 0.64% (-3.91% inflation-adjusted)
  • In 2012, house prices fell by 1.65% (-4.36% inflation-adjusted)

In 2013, the property market finally recovered with house prices rising by 1.12 (0.76% inflation-adjusted) from a year earlier. House prices have been rising modestly since then.

  • In 2014, house prices rose modestly by 3.34% (3.61% inflation-adjusted)
  • In 2015, house prices rose by 2.29% (2.38% inflation-adjusted)
  • In 2016, house prices rose by 5.5% (3.72% inflation-adjusted)
  • In 2017, house prices rose by 3.57% (-0.33% inflation-adjusted)

Property demand continues to rise

In 2017, the total number of property transactions rose modestly by 3% y-o-y to 124,600 units, based on figures from State Enterprise Centre of Registers.

In 2017:

  • Houses: 10,600 units were sold, up 6.9% from a year earlier
  • Apartments: 33,700 units were sold, down slightly by 0.6% from a year earlier
  • Land: 62,600 land sites were sold, up 5.9% from a year ago

Lithuania’s five major cities (Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys) accounted for about 33% of all real estate deals in 2017.

Residential construction activity

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,

Lithuania dwellings constructions

Construction activity surged in 2015 and in 2016. Dwelling completions soared 24.8% y-o-y to 12,703 units in 2016, the highest level since Communism.

During the first three quarters of 2017:

  • The number of dwellings for which building permits were granted rose by 13.4% y-o-y to 12,743 units, based on figures from Statistics Lithuania.
  • Dwelling completions fell by 4.1% y-o-y to 7,883 units.

Mortgage market continues to recover

Mortgage debt rose to 22.4% of GDP in 2009, from a mere 0.4% in 2000, with about 80% of all purchases made with the aid of mortgages, and typically 95% of property value granted in loans.

Lithuania housing loans

The mortgage market contracted during the crisis, reaching 16.45% of GDP in 2014. It showed real growth in 2015 and succeeding years, with outstanding housing loans rising by 8.94% y-o-y in 2017 and the market’s size reaching 17.3% of GDP.

Lithuania outstanding housing loans

Almost 99% of all loans have initial rate fixation of over 5 years.

Interest rates remain low

Lithuania interest rates

In December 2017, the average interest rate for new housing loans was 2.05%, slightly up from 1.93% a year earlier, according to the Bank of Lithuania.

All new loans are in euros. In February 2002 the litas was pegged to the euro at €1 = LTL3.4528. The interest rates on litas and euros converged, and from 2005 to mid-2007 there was not much difference. Yet during the financial crisis rates on litas-denominated new housing loans surged to around 10% from April to October 2009. As well as causing distress to borrowers, the litas rate hikes caused the market swiftly to shift to euro, and since 2015 all new loans have been in euros.

In December 2017:

  • The average interest rate for new housing loans with initial rate fixation (IRF) of up to 1 year stood at 1.96%, slightly up from 1.8% a year earlier.
  • The average rate for new housing loans with IRF of more than 1 year was 4.57%, up from just 2.78% a year ago.

On the other hand, average interest rates for outstanding housing loans fell to 1.61% in December 2017, from 1.65% a year ago. Over the same period:

  • The average rate for outstanding loans with IRF of up to 1 year stood at 2.46%, up from 0.92% a year earlier.
  • The average rate for outstanding loans with IRF of 1-5 years was 2.75%, almost unchanged from a year earlier.
  • The average rate for outstanding loans with IRF of over 5 years was 1.6%, down from 1.64% a year earlier.

Rental yields remain good; rents continue to rise modestly

Rental yields in the country’s major cities remain moderate to good.

  • In Vilnius, the average gross rental yield for 50 sq. m. two-bedroom apartments was 5.1% in the first half of 2017, down from 5.2% in H2 2016 and 5.5% in H1 2016, according to OberHaus.
  • In Kaunas, the average gross rental yield for a similar apartment stood at 6.1% in H1 2017, down from 6.2% in H2 2016 and 6.3% in H1 20016.
  • In Klaipėda, the average gross rental yield for 50 sq. m. two-bedroom apartments was 6% in H1 2017, up from 5.9% in H2 2016 and 5.8% in H1 2016.

In recent years, increases in apartment prices have exceeded rent increases in most cities, causing rental yields to fall slightly.

In H1 2017, apartment rents in all major Lithuanian cities either remained stable or rose modestly from the previous year.

  • In Vilnius, the average monthly rent for two-bedroom apartments stood at €315 per sq. m. in H1 2017, according to OberHaus.
  • In Kaunas, the average rent for the same apartment was €265 per month
  • In Klaipėda, the average rent was €260 per month
  • In Šiauliai, the average rent was €135 per month
  • In Panevėžys, the average rent was €110 per month

Bigger houses in the city centre, the Old Town and other prestigious districts, such as Valakampiai, Antakalnis, and Zverynas, are offered for much higher rents, which vary from €850 to €2,200 per month.

Moderate economic growth

Lithuania GDP growth graph

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. In 2014, Lithuania’s economy expanded by a modest 2.9%, after expanding by 3.3% in 2013, and 3.8% in 2012, according to Statistics Lithuania. Lithuania’s growth over the past five years has been impressive. However in 2015, economic growth slowed to 1.6%, the slowest growth since 2009, due to sluggish investment and decline in exports to Russia, the country’s largest single trading partner.

Then in 2017, Lithuania’s economy grew by 3.9%, up from 2.2% growth in 2016 and the fastest pace since 2011, amidst strong growth in the industry and services sector, as well as increased exports, according to Statistics Lithuania.

The economy is projected to expand by a modest 2.8% this year, according to the Bank of Lithuania.

Lithuania unemployment

Nationwide unemployment stood at 6.7% in Q4 2017, slightly up from 6.6% in the previous quarter but sharply down from 7.6% in the same period last year.

Inflation accelerated to 3.7% in 2017, sharply up from just 0.7% in 2016 and a deflation of 0.7% in 2015. Inflation is expected to slow to 2.6% this year, according to the Bank of Lithuania.

Lithuania’s public finances at sustainable levels

Lithuania budget balance

In 2018, Lithuania is projected to post a budget surplus of 0.6% of GDP, up from surpluses of 0.1% 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 38.9% of GDP in 2017, from 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.

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