Real property values stable in Lithuania
February 15, 2018
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.
Prices are rising in Vilnius; rental yields are moderately good at around 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%. These are moderately good yields. We haven't been able to bring you yields estimates for the very smallest apartments, but would guess that yields would be somewhat higher.
After collapsing during 2008-2010, prices in Vilnius have seen a U-Curve: in the past year there has been a rise of around 5%. Prices of old, but fully refurbished apartments located in Vilnius’ city centre and old town range from EUR 2,050 to EUR 2,400 per square metre (sq. m.).
This means that a 120 sq. m. in the city centre costs on average EUR 280,000, 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 1,100 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.
Modest economic growth; sustainable public financesLithuania is the most populous and largest of the Baltic States, with a population of around 2.8 million in 2017. Following independence from the USSR in 1990, Lithuania emerged as a successful transition state, becoming one of Europe’s fastest growing economies. Lithuania joined NATO and the EU in 2004.
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.
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.
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.