Life in the capital becomes a challenge: economist warns - we'll work

Justina Maciūnaitė 3 September 2021 05:30
After looking at the purchase and sale prices of real real-life for some time now, we want to look at: annual house price growth is estimated at about 15%. Of course, the rental market is also reacting to rising RE prices. There is also double-digit price growth, a jump especially seen in Vilnius. However, experts warn – we will work: creativity may be needed to live and work in Vilnius.
This year the RE market was very active throughout Lithuania. Luminor Bank Chief Executive Officer According to economist Žygimantas Maurico, in terms of house price growth in the European Union, our country is certainly at least in the TOP three. It is recorded that since the beginning of the year, according to Inreal data, the prices of new dwellings have grown by about 20 per cent on average, the prices of all apartments in Lithuania, according to Ober-haus estimates – more than 15 per cent (according to July data). "This is due to such reasons that the Lithuanian economy has not experienced some kind of crisis, people's incomes are growing quite rapidly and recently we see that positive expectations of people are forming very much. Those who were waiting for price adjustments saw that they were not there and the train seemed to be going, so a large number of buyers started buying apartments en masse, trying to keep up with that train, and speculators also joined them, something we have not seen since 2006-2007. This is a hot market and we see this in the statistics: the annual price growth of housing is 15 per cent, and if we look at the ad portals, we will see that residents have raised REAL prices by 19 per cent per year, in Kaunas – over 20 per cent, in Palanga – 40 per cent. These are the figures and we have not seen them in 2006-2007. There is a growing risk that real-world price bubbles may swell, at least in certain segments," the economist commented on Delfi TV's "Four Borders."
Another significant reason that affects the activity of the RE market is bank interest. Marius Čiulada, Head of the Old Town Office at Ober-haus, recalls that today borrowing is very cheap, the bank's interest margin is about 2%, which means that it is not useful to keep a deposit. Rental prices have also risen There is no doubt that activity and changes in the REAL sales market also affect the rental segment." According to Eurostat data, in a decade in our country, house rents have more than doubled, according to statistics department, since 2015 – as much as 30 percent. According to Maurico, the main factors influencing rental prices are income growth and population growth in metropolitan areas, especially in Vilnius. The latter factor affects the demand for rented apartments. "Demand for renting housing was high. At the same time, the rental market is becoming more transparent, we can see that developers are also investing in rental housing, projects are being built in which apartments will be intended only for rent. This is a very changing rental market, it is slideing and price growth is being tracked at a relatively rapid pace. The growth rates may even be somewhat surprising, as they are double-digit. The fact that the rental market is becoming more transparent means that prices are also rising, as taxes are paid, and the quality of housing is rising, and as the quality of housing increases, prices also rise," explains the interviewer.
M. Čiulada, head of the Old Town Office of Ober-haus, calculates that rents in Lithuania as a whole increased by 2% in the first half of this year. The overall annual average price increase is usually around 5%. True, according to the interlocutor, it should be noted that the adjustments to rental prices are influenced by seasonality. "The pandemic has an impact on the rental market, but seasonality is more. Now autumn has come and already since mid-August the demand for apartments for rent has increased significantly, not only for students, but also for company employees who came here to work from other countries. And not only the language about Vilnius goes, practically every city in Lithuania has its own target audience of housing tenants. There are students and foreign employees in Vilnius, especially from Belarus we have a lot of IT specialists. But in Vilnius, the influence of students is much less, because the market itself is larger and much more flexible. In Kaunas, for example, the impact of students on the rental market is much greater. In Kaunas, for example, even the first co-living projects were implemented, not in Vilnius. In other Lithuanian cities, such as Šiauliai, there is a strong transport sector, there are a lot of Belarusian and Ukrainian workers who just arrive for a while and leave quickly. This is where housing occurs, as old houses are transformed into like hotels and beds are rented there, not even rooms," the interviewer discusses the trends of the rental market in Lithuania.
The rental market is slower to respond to demand Economist Z. Maurice points out that, with such demand, the supply of apartments for rent also affects rental prices. The lower it is, the higher the prices landlords can ask for. According to M. Čiulada, the supply of apartments for rent reacts more slowly to the demand for demand. "The rental market is not one that reacts quickly and as soon as demand grows strongly, supply is able to react so quickly. This is reflected in the prices. If we take longer periods, we can see that the supply of housing for rent is really growing, we are recording several hundred new apartments every month and, it is no secret, several dozen of them are bought specifically for rent. Of course, they appear on the market after some half a year, but this shows that the number of housing rentals is increasing," says M. Čiulada.
More housing is being bought for rent also because Lithuanians invest their savings specifically in real estate, especially when, as already mentioned, the conditions of banks regarding the loan are so good. "The income from renting a home is about 5 per cent on average. If the money costs (bank interest margin – Delfi) 2%, the lessor is left with a significant difference in his pocket. Likewise, tenants, if a home is rented because there is simply no money for a down payment or often changes homes and is not yet ready to buy a permanent one, they pay the landlord that 5%, although there is a bank offer for 2% nearby. Seeing such differences, tenants may also want to become buyers, no longer tenants. That's why that buying market is so active, too, because there are those who buy for an investment and those who buy for themselves," he explains.
Vilnius real estate market is alarming Currently, in Vilnius, where the rental market is the largest, the most popular 1-2-room apartments can be rented from 300 Eur for older construction housing, better equipped apartments can cost 450 Eur per month. As for new construction, prices start from 450-500 Eur and above, depending on various factors: district, installation condition, etc. Economist Z. Maurice emphasizes that the rental prices in the capital should not be surprising, because Vilnius, like many other capitals of the EU, is an expensive city. "For example, according to EU estimates, the rental price of a two-room apartment in Vilnius is about 800 euros, one-room – 600 euros, while the average salary in Vilnius is about 1100 euros. If the salary is even lower, then you already need to engage in creativity: look for smaller apartments, rent housing in projects on the principle of co-living, etc. But such a trend is present in all EU capitals, vilnius prices have practically become the same with those of Riga, Tallinn, similar to those in Warsaw and Bratislava. And indeed, it is a challenge to make a living in the capital if the income is low," the economist emphasizes.
Real estate purchase and sale prices are not far behind, housing is becoming increasingly difficult to afford in the entire Western world, and Lithuania is no exception. Mr. Maurice points out that historically, in the West, the 90 sq. ft. m housing had to be bitten by 5 years of wage savings. Currently, many EU capitals do not have such indicators. "You have to work in Vilnius for 12 years to buy a home. In Berlin, there will even be a referendum, the question of which is whether to expropriate housing from those companies that are engaged in renting housing," says the economist. The interlocutor warns that the growth of both real estate rental and purchase and sale prices in Vilnius must stop, otherwise we may face significant difficulties. "If we get our hands on it and raise house prices to no longer bite, we could lose that competitive advantage over the capitals of other countries. If housing prices, rental prices are very high, workers will choose other states. Lithuanian entrepreneurs, too much, if it is too expensive for their employees in Vilnius, they will set up their businesses in other cities," emphasizes Ž. Mauricas.
However, M. Čiulada is convinced that Vilnius is a large city with more than one attractive suburb and settlers do not necessarily have to look for housing in the very place of residence as close as possible to the central part of the city. "Vilnius is a big city, there are smaller suburbs around it, it is not necessary to live in the city center. The city, in the end, is expanding, there are still unused areas around Vilnius. Again, it's a question of the city's strategy of how the city will develop. Now the strategy is that the capital needs to be compacted, conversions are underway, etc., the city center is changing and in order for us to have efficient public transport, it would have to compact it even more. But it should be borne in mind that we also have suburbs around, which are closer to nature, so the situation in Vilnius is definitely not so bad. We also have competing cities that will gladly accept settlers," the real estate expert emphasizes.
How to stop the rise in rental prices? Rental prices continue to rise, but this process could be hampered by a larger supply of rental housing. A lot of hope is placed in the projects developed by real estate developers, where all apartments are intended only for rent. According to Mr Maurico, an increase in supply in this way could halt price increases. "When it comes to housing affordability, the increase in prices across the Western world was driven by low bank rates. People tend to invest their money in housing, raising its cost. This, accordingly, affordability decreases. Historically, there has been such a rule that in the West, 90 sq. m. m housing had to be bitten by 5 years of wage savings. Now there are practically no such indicators in any eu capital. You have to work in Vilnius for 12 years to buy a home. In Berlin, there will even be a referendum, the question of which is whether to expropriate housing from those companies that are engaged in renting housing," the economist comments. You can watch the full conversation in the show "Four Walls".


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