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The procedure for purchasing real estate is being changed: it will be possible to buy new housing only equipped predicts a jump in real estate prices

Justina Maciūnaitė 16 January 2023

11:14 aA From January of next year, it will no longer be possible to buy housing in Lithuania with the usual partial finishing. The notarial purchase and sale agreement between the buyer and the seller will be signed only when the project contains all the engineering networks, san. knot and so on. Aistė Gedvilienė, chairwoman of the Seimas Environmental Protection Committee, says that such an amendment to the legislation will protect the buyer from fraud and losses when the developer goes bankrupt without completing the project. According to the developers, due to this requirement, from next year, already costly new housing in Lithuania will become even more difficult to afford, as developers will raise real estate prices.

Wants to protect the buyer In the autumn of last year, an idea appeared in the Seimas Committee on Environmental Protection regarding the amendment of the building regulation: developers will be able to sell housing only when it is 100% completed. To date, buyers have the opportunity to purchase an apartment or an individual house, which is completed by only 85% or more. In other words, with partial finishing. From January next year, notarial purchase and sale agreements between the seller and the buyer will be able to be signed only if the real estate purchased by the buyer has engineering networks, communications, san. node, comply with the project, other obligations of the developer have been carried out and the project is registered as 100% completed. A. Gedvilienė, chairwoman of the Seimas Environmental Protection Committee, says that such an amendment to the law is in a joint package with the law on construction, which the Seimas considered in the second half of last year.

"At the end of the summer, we had a very public case of "Gelvonų terasai" in Vilnius, so when examining this case, we did a lot of discussions in various formats in search of options for how to protect the consumer from such a situation when the house is being built, the property is sold, preliminary contracts are concluded, which, in principle, helps to finance the project itself, but, as in the case of "Gelvonų terasai", there is a possibility that the construction permit will be revoked altogether. A person feels as if by entering into an agreement with the developers already acquires the property, and in fact it becomes just a creditor. We want to protect it and we want to introduce a European practice, when the house is standing, it is finished, then a person can come, look around, and only then sign a preliminary contract when there is already an object," explains A. Gedvilienė.

Housing buyers know that when buying an apartment of new construction, first of all, a preliminary contract for the purchase and sale of housing is signed, an advance payment is made. According to A. Gedvilienė, it is not yet possible to exclude this stage from the process of selling housing by legislation, but she emphasizes that buyers should consider this contract as an investment of their money in the developer's promises to complete the object. "In order for us to change the procedure for signing preliminary contracts for the sale of housing, we should change the civil code. Yes, we had this discussion, because the preliminary contract has no guarantee that a person will have that thing. Therefore, we are discussing amendments to the Civil Code, but there are a lot of different opinions. Therefore, it will continue to be possible to conclude preliminary agreements as before, but here we want to spread a very clear message to people: a preliminary contract for the sale of housing is, in principle, a credit agreement. A person contributes to the project with his finances, with his own funds, but he does not acquire any rights to that housing. It is very important that a person, when purchasing a home, knows what his rights and obligations are," emphasizes A. Gedvilienė.

Assures that housing prices will rise. Real estate developers greeted the news about the change in the procedure for buying and selling housing already next year with concern. Mindaugas Statulevičius, President of the Lithuanian Real Estate Development Association, says that such a change in the legislation will lead to construction costs in the first place. Also, he said, such a decision restricts competition, since the big players in the market will have a better chance of completing the project without prior reservations. "The developer will not be able to sell 80-95 per cent of the finished real estate, he will have to fully complete the project and for some developers this may not be easy, especially for smaller developers, because it will take longer to bank financing, it means that more interest will have to be paid and the money will come back later. It's in terms of competition, the bar for who can develop projects rises. Some small developers may have to balance on the verge of profitability and this can be an unbearable burden. The bar is rising, maybe it's not bad, but when it comes to a buyer who benefits only from a larger supply and competition between developers in the market, the opposite is done in this case," says M. Statulevičius.

The interviewer continues that the current and future costs of real estate development will be transferred by developers to buyers, i.e. housing will become more expensive. "We have calculated that when a 100% completion project is presented to the market, there may be cases that housing will cost 400-500 Eur / sq.m. The installation of what is needed for completeness is ventilation, heating system, recuperator, etc., it will now be up to the developer to finish it himself, which means that the final price, which we will also see in the statistics, will jump from the prices of others. And this is unsustainable, because in order to be 100% complete, under the current STR you need to plaster, put the floor, door, hang a light bulb, install a san. knot and so on. And a person who wants to individually equip his apartment will ruin everything, we will wait," says M. Statulevičius. Sees more risks He says that such a change in legislation carries even more risks that the developer will not be able to complete the project at his own expense, residents will still have reserved housing from the drawings, since this is not prohibited by law, and the likelihood of buyers losing money increases even more. "That finality is self-deception. It was necessary to consult with the market, to look for solutions, maybe some guarantees, to ensure that, for example, up to 100% of the completion of a building cannot be lived in it, etc. The buyer will continue to be able to choose a home from the drawings, pay the reservation fee, sign a preliminary purchase sale agreement, but the notarial agreement, which is necessary for banks to get a home loan, will be able to be signed only when the project is 100% completed," says M. Statulevičius.

The interviewer says that already today it is difficult to buy new-build housing, and from next year, if developers raise prices, real estate can become an even more difficult to bite purchase. "The question is whether the buyer will be able to get that loan at all, because already now the loans are not affordable for everyone, with the current real estate prices, the average housing is becoming more expensive by 15 thousand. euros and more, this is a really significant amount at least in Vilnius, so the affordability of housing can be negatively affected by this," explains M. Statulevičius. The buyer does not see the negative consequences However, housing with all engineering networks, san. knot and so on. the acquisition may also have advantages. Real estate analyst Arnoldas Antanavičius says that from the point of view of financing the purchase of housing, it is easier for buyers to buy such real estate. "People can apply for a bank loan in a simpler way and already from the final amount. You also need to have less of your own money, because when buying with partial finishing, you need to have your own down payment for a start, and then make a decoration practically from your own money. In this way, even the developers offered financially sensitive buyers that they would buy an apartment with a full finish and thus they did not have any problems with financing," says A. Antanavičius.

He continues that buyers should not suffer as a result of the change in legislation, but it may be difficult for some of them to change their home buying habits, to come to terms with the idea that the housing will be furnished by the developer. However, the real estate analyst warns that the market should be closely monitored, as there may be ways to circumvent the requirement. "In practice, there are examples that 100 per cent completion does not mean that the building is finished and fully equipped. In the past, there have been situations where some developers note 100% completeness and then only the installation is done. It is possible to circumvent the system in the market, of course, illegally," the expert notes.

The real estate analyst urges not to be frightened by talks about the increase in real estate prices, because, according to him, in any case, the cost of a new home with full decoration, whether it is made by the buyer himself, borrowing from a bank with interest, or the seller, comes out very similar. "Developers usually try to sell as early as possible, even with partial finishing, which means that they will have to wait longer for the money invested, profitability expectations may decrease, which may also raise prices. But developers always say that they will pass all costs on to buyers, although we live in a market economy in which demand and supply play a crucial role. It's developers who can raise prices, but there will be no sales. Of course, developers will want to compensate for the cost of installation through the cost of an apartment, but this should not be seen as an increase in housing prices, since people who have purchased housing with partial finishing in order to equip it also spend the same amount. It is 300-400 Eur / sq. m. m the price of housing may increase, but it is already so when a person buys with partial finishing and installs it himself," emphasizes the real estate analyst.https://www.delfi.lt/bustas/nt-rinka/keiciama-nt-isigijimo-tvarka-nauja-busta-bus-galima-pirkti-tik-irengta.d?id=92280063

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