Lithuania still robust, despite Russia-Ukraine war.
Lalaine C. Delmendo | February 08, 2022
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.
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.
Analysis of Lithuania Residential Property Market »
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.
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.