With the European Central Bank raising interest rates, the real estate market is expected to cool down. However, it may take some time before properties in Lithuania become more affordable, analysts say.
Real estate prices have been rising steadily and quite steeply over the last couple of years, with buyers snatching every property on the market, sometimes even before it was built.
Price rises have now stopped. Buyers’ appetite to borrow and spend whatever the asking price is on their dream home has diminished. The housing market started to cool down as 2023 began and, according to the head of the realtor Ober-Haus, the next six months are likely to be stagnant for the market.
“No major changes are expected until the third quarter of the year. Market activity will be negatively impacted by the rising EURIBOR, the rather negative outlook of the population, inflation – all of these make for an ugly mix,” says Audrius Sapoka, CEO of Ober-Haus.
In Vilnius, November 2022 saw the first – albeit rather small – price drop since 2018. In the coming months, people are expected to be more cautious when it comes to buying flats and take a much more balanced view of their financial commitments.
According to Swedbank economists, the best time to look for a place to buy will be the last quarter of 2023, when prices could go down by as much as 10%.
“We will see if there will be a turn to negative growth. In the first quarter of this year, we should see signs, but perhaps a more serious, stronger trend will emerge from the middle of the year,” says Vytenis Simkus, senior economist at Swedbank.
At the moment, potential buyers would be well advised to wait a few months, observe developments in the market and banking, and then decide.
“If it’s a first home, it is often a very long-term investment. Catching the peaks and troughs of the market will probably be very difficult. You need to assess your personal financial situation and make a decision based on that,” comments Simkus.
Experts point out that as the market calms down, developers of smaller projects, eager to realise their investments as soon as possible, may start to offer discounts on parking spaces, perhaps free storage.
At the same time, higher interest rates may limit what buyers can afford.
“If you need a home and your options have narrowed a bit, you will look for the best option in the current environment. So the buyer may decide to buy a smaller home, an older one,” says Viktorija Cohen, associate professor at the Faculty of Economics and Business Administration at Vilnius University.
Economist Evaldas Stankevicius, of Kaunas Technical University, is skeptical about the possibility that house prices may fall this year.
“Jobs are here and wages are not falling. Population growth will stay positive in the major cities. This implies that prices on the secondary market will remain relatively high. The segment of economy housing will certainly not become very cheap,” he says.
“As for luxury housing, it is not the best time for these projects and there may be doubts how they will be completed and what incomes will their buyers pay from,” Stankevicius adds.
In Vilnius alone, around 4,500 new units are expected to be completed this year. (LRT/Business World Magazine)
