Lithuania's housing market rising - very slowly
Last Updated: July 16, 2015
Apartment prices in the capital, Vilnius, have risen by 12.5% since the post-crisis low of May 2010, a slow and steady rise.
During the year to June 2015:
- In Vilnius average apartment prices rose 1.2%, to €1,298 per square metre (sq. m.).
- In Kaunas, apartment prices rose by 0.4%, to €940 per sq. m.
- In Klaipėda, apartment prices fell 0.4%, to an average of €975 per sq. m
- In Šiauliai, apartment prices dropped 0.5%, to an average of €559 per sq. m.
- In Panevėžys, existing flats rose by 0.1%, to an average of €530 per sq. m.
Residential property prices in the capital started to decline in 2008, after the global credit crunch. The housing market has not yet fully recovered since then.
- In 2008, house prices fell by 15.23% (-21.85% inflation-adjusted)
- In 2009, house prices fell by 26.84% (-27.77% inflation-adjusted)
- In 2010, house prices fell by 2.98% (-6.55% inflation-adjusted)
- In 2011, house prices dropped by 0.64% (-3.91% inflation-adjusted)
- In 2012, house prices dropped by 1.65% (-4.36% inflation-adjusted)
- In 2013, house prices rose by 1.12 (0.76% inflation-adjusted)
- In 2014, house prices rose by 3.34% (3.61% inflation-adjusted)
Demand remains very weak. Transactions of detached houses fell 21% in the first quarter of 2015 from a year earlier, to an average of 535 units per month, according to the State Enterprise Centre of Registers. Apartment transactions also fell by 31% y-o-y in Q1 2015, to an average of 1,900 units per month.
In Vilnius, the number of new apartments sold fell by 29% in Q1 2015 from the same period last year, to 656 units, according to Ober Haus.
Private ownership accounted for more than 98% of the total area of dwelling stock in 2014.
In 2014, Lithuania’s economy grew by a modest 2.9%, after expanding by 3.3% in 2013, 3.8% in 2012, 6.1% in 2011, and 1.6% in 2010, according the International Monetary Fund (IMF). The economy is expected to expand by 2.8% this year and by another 3.2% in 2016. Lithuania finally joined the eurozone in January 1, 2015.
Returns on property climbing in Vilnius, Lithuania
In Vilnius, rental yields continue to climb. Gross rental yields on apartments in the city centre range from 5.79% to 6.01%. In the suburbs, rental yields range from 4.64% to 6.00%. These are moderate to good yields, and suggest that the economy continues to pick up.
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 1,750 to EUR 2,000 per square metre (sq. m.). In the prestigious suburban neighborhoods of Vilnus (Antakalnis, Zverynas and Valakampiai), old refurbished apartments cost around EUR 1,500 to EUR 2,100 per sq. m.
This means that a 120 sq. m. in the city centre costs on average EUR 240,000, whereas in the suburbs, it costs on average EUR 255,000. 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 8 per sq. m. per month.
A 120 sq. m. apartment in the centre could be rented out for around EUR 1,200 per month while in the suburbs, a 120 sq. m. apartment fetches around EUR 900 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 tax rate is 5% for property up to LTL500,000 (€143,000). Otherwise, the tax rate is 10%.
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, declining unemploymentLithuania is the most populous and largest of the Baltic States, with a population of almost 3 million in 2013. 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, 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 2013, Lithuania’s economy grew by a healthy 3.3%, after expanding by 3.8% in 2012, according to Statistics Lithuania. In 2014, the economy grew modestly by 2.9%, fuelled by strong domestic demand and a recovery in the real estate and construction sectors.
Lithuania's growth over the past five years has been impressive. “Sustainable growth in the face of external challenges shows the strong basis of the Lithuanian economy and is a good sign for the future,” noted the IMF.
The economy is expected to expand by 2.8% this year and by another 3.2% in 2016, driven by domestic demand, with rising wages, falling unemployment and subdued inflation, according to the European Commission. However, Bank of Lithuania has recently cut its growth forecast for this year to 2%, from 2.7%, due to falling exports caused by the embargo imposed by Russia. <
Unemployment continues to fall. In May 2015, the jobless rate stood at 8.2%, down from 8.9% in April, 9% in March, 9.2% in February, and 9.4% in January 2015 - and down from 17.8% in 2010, according to Statistics Lithuania.
Inflation stood at -0.5% in June 2015, the seventh consecutive month of negative inflation, according to Statistics Lithuania. Inflation is expected to be -0.31% this year. Inflation fell to 0.24% in 2014, from 1.16% in 2013, 3.17% in 2012, 4.12% in 2011, according to the IMF.
Lithuania’s budget deficit was 0.7% of GDP last year, far below the 3% limit under the EU’s stability and growth pact. During the global crisis, the deficit had 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 40.9% of GDP in 2014, well below the 60% threshold.
Lithuania joined the Euro on January 1, 2015, the bloc’s 19th member. Lithuania was refused euro entry once before, in 2006, after it failed to meet the inflation criteria.
The Social Democrat-led government, which came into power in December 2012, had vowed that Lithuania would join the euro this year, after the Litas had been pegged to the Euro for a decade.
“We feel the benefits of the membership in the eurozone,” said Prime Minister Algirdas Butkevicius. “The single European currency helps Lithuania withstand external shocks. Lithuania has managed to retain the positive growth.”