Slowing economy has not stopped the real estate market
Conference of Lithuanian Real Estate Association (LNTPA) presented a joint 2015-2016 economy and real estate market report prepared by Inreal group, Šiaulių bankas and the law firm Cobalt, which deals with economic and real estate market trends and the latest forecasts, the expectations index, the best examples and other topics. Full text of overview is given in the end of this article.
Last year, the country's economy grew at a slower pace. Real estate market has also been less buoyant than in 2014, but still did not stop. It is forecasted that it will continue to be active, price increase is also to be expected.
“Despite the fact that due to external effects in the last year the country's economy grew more slowly compared with the previous years, it did not have a decisive impact on households' expectations and consumption which is the main driver of economic growth. Some uncertainty in the global economic growth prospects exists, however, having re-oriented exports to new markets, recovering business investments, further increasing wages, even when inflation becomes positive, consumer purchasing power should strengthen, and country's economic growth accelerate,” says Šiaulių bankas Market and Treasury Department Director Tomas Varenbergas.
Real estate market went back to its normal rhythm in the second half of this year, number of purchase and sale transactions increased by about a quarter. Increased market activity raised secondary housing market sellers’ expectations and gave impetus for the price raise in the big cities by 4-8 per cent. It is forecasted that the prices can increase by another 3-4 percent. Meanwhile, in the periphery the demand is too low, to expect for sustainable real estate price growth.
“More active end of the year led to improved expectations in the secondary housing market, which observes an average 4-8 per cent growth in apartment prices in Vilnius, Kaunas, Klaipėda and Šiauliai. In Panevėžys, Alytus apartment prices within the year went up modestly: by 2-3 per cent, while in the smaller cities prices have remained stable. Individual home prices have not changed in Lithuania over the years,” says Inreal Investment and Analysis Department Head Arnoldas Antanavičius.
In 2015 real estate developers in all the cities offered less new construction apartments than a year ago. In Vilnius about 3650 new apartments were offered, i.e. by 24 per cent less than a year ago, in Kaunas 114 apartments, i.e. 4.8 times less than a year ago, in Klaipėda 176 apartments, i.e. by 33 per cent less than a year ago, in Palanga 132 apartments, i.e. 3.8 times less than a year ago. According to Inreal analysts, retreating supply of new apartments here and there allowed realtors to apply a slight increase in sales prices. In Vilnius prices of economy-class apartments grew up by 7.5 per cent up to 1304 euro/sq.m, while the medium and prestigious class apartment prices due to increased competition remained unchanged, respectively, 1696 euro/sq.m and 2,539 euro/sq.m. In Kaunas due to reduced competition prices of new apartments in the economy segment increased by 2.3 per cent up to 1046 euro/sq.m, while in the mid-range segment by 7.6 per cent up to 1402 euro/sq.m. In Klaipėda despite the reduced competition, the slight correction in prices of new apartments could not be avoided: medium and prestigious class apartments within a year went down by about 1 per cent respectively, to 1297 euro/sq.m and 1950 euro/sq.m. Solely in economic segment new apartment prices remained stable: 1162 euro/sq.m. In Palanga reduced competition among realtors allowed a slight increase in prices in the economy and mid-range segments respectively by 2.3 per cent up to 1067 euro/sq.m and 0.9 per cent up to 1561 euro/sq.m. In prestigious class segment new apartment prices remained stable: 2323 euro/sq.m.
“We predict that in 2016 developers in the capital will be less active, that is they should offer the market about 3,000 new apartments, while the demand activity will largely depend on external factors: Russian, Chinese and other problematic economies’ affect on our economy. Vilnius has a very strong internal demand, so it is likely that the market will remain active in 2016 as well, which makes it possible to expect an average of 3-4 per cent property price growth,” says A. Antanavičius. On the other hand, in other Lithuanian cities demand in 2015 was significantly weaker, even at lower price levels, but growing population desire to invest in real estate is noted, and in 2016 we should get more activity in other major cities. In smaller cities it is difficult to see the arguments to expect increased activity in the housing market, so it is likely that the price level will remain stable.
In the business centres segment only Vilnius stood out: five new business centres were opened during the year: Premium, One, Sostena BC, k29, UNIQ, which collectively supplemented Vilnius modern office market with about 37600 square meters area. In 2016 Vilnius market will be complemented by at least another 4 currently being built modern business centres with 66900 sq.m of leasable area. At the beginning of 2017 at least another 4 also currently being built business centres with 47500 sq.m of leasable area will enter the market. “It is clear that Vilnius should receive a record-braking area of new business centres, and the market raises increasing doubts as to whether such an active business centre development causes vacancies jump and rental price corrections”, considers A. Antanavičius. On the other hand, the reason is very limited, because most of the business centres under construction are successfully rented out before the end of the construction, and most of their tenants are strong foreign companies, which are expanding their activities and creating new jobs.
Retail volume growth, decreasing unemployment and increasing income of the population suggests that we should continue to monitor the moderate retail sales growth. In 2015 four new shopping centres were opened in the country. Three of them in Vilnius, they supplemented the market with 27600 sq.m of leasable area, and one in Panevėžys with 1600 sq.m of leasable area. In 2016 four new or expanded supermarkets are planned to open in Lithuania: three in Vilnius and one in Kaunas. While vacancies in the shopping centre segment increased a little, but they remain extremely low, not exceeding 3 per cent, which lets the supermarket managers to have a better bargaining position and leads to moderate increase in rents.
Storage premises segment in 2015 in major cities of the country observed increase in vacancies. Only in Vilnius vacant space remained stable in spite of the fact that in 2015 in Vilnius two new logistics centres were opened, which supplemented the market with about 14,000 square meters of leasable area. In Kaunas and Klaipėda vacancy rate has declined significantly, and it can be predicted that in 2016 it will continue to grow, and this, in turn, will increase the pressure on storage renters and brake development of logistics centres.
In the hotel segment, despite the decline in tourist flow from Russia, in 2015 Lithuanian airports and hotel occupancy rates continued to improve. This created favourable conditions for growth in the hotel segment in Lithuania, and in 2016 it is also expected for further development. In 2015 in Lithuania 6 hotels were newly built or reconstructed. In 2016 it is scheduled to open at least another 4 new hotels in Vilnius and one in Klaipėda. Room rates, compared with 2014, increased only slightly, but the hotel expansion is mainly driven by growth in room occupancy, which in 2015 reached 50 percent limit in Lithuania.
The real estate market regulatory environment in 2015 experienced a number of significant changes which in the near future is likely to have an impact on the further development of the market, particularly in the residential segment. In particular, since 1 November 2015 updated Responsible Lending Regulations entered into force, adopted by the Bank of Lithuania, aimed to tighten requirements for credit institutions issuing mortgage loans, and in spring of 2016 the Law on Credits Related to Real Estate should enter into force, transposing the Housing Directive establishing the basic conditions for issuing credits for housing acquisition. Also, since the beginning of 2016 a duty to build A energy performance class structures had to come into force, but due to the situation on the market the date was postponed to 1 November 2016.
“All of these new requirements will clearly impact both real estate developers and housing buyers. Tighter obligations to financial institutions – the main housing credit grantors – will jeopardize consumer credit availability, increased energy efficiency class will raise cost of newly developed properties,” says Simona Oliškevičiūtė-Cicėnienė, law firm Cobalt partner, Real Estate and Infrastructure Practice Group Leader .
Among the most important legislation, reverse application of VAT taxation of construction can be mentioned as well as revised procedure for payment of real estate tax and new responsibilities for builders to register construction in progress. What changes we will face in 2016 we can only guess, but already early in the year, along the mentioned Housing Directive transposition, we should receive updated Law on Protected Areas, which seeks to loosen a little the embodied limitations of real estate development in protected areas, in the second half of the year, the adjusted Curonian Spit national Park management plan solutions should be published.