Lithuania Residential Market Commentary Q2 2015

At the end of Q2 2015, the Lithuanian residential market gained momentum. Although the beginning of the year did not promise any major movement in the market, results in June injected some optimism. According to the State Enterprise Centre of Registers, in Q2 2015, 52% more house purchase and sale transactions and 23% more those of apartments were concluded as compared to Q1 2015 in Lithuania. In Q2 2015, on average 820 transactions for houses and 2,350 transactions for apartments were concluded per month. Of course, early in the year there is usually little activity in the housing market, but the results of Q2 2015 were quite good. Although compared with the same period 2014, the total number of housing transactions in Lithuania was by 12% smaller, the situation was similar to the 2013 indicators, when the market was also active. In June this year, the housing sector was unexpectedly very active – the number of purchase and sale transactions for apartments and houses in Lithuania has been so far the largest this year.

Despite geopolitical challenges, the country’s overall economic situation remains positive and this continues to encourage both the construction sector and steady growth in housing demand. It is likely that such improvement in the housing market activity could also be attributed to temporary factors. This year, amendments to Responsible Lending Regulations were proposed to the public that were to take effect in July this year. Tightening of lending conditions may have prompted potential buyers to purchase homes before this date. However it was hardly the essential factor that determined a surge in housing transactions in June, because, according to the Bank of Lithuania, had the planned amendments been in force in 2014, considering possible modifications in loan characteristics, still 99 out of 100 customers would have been granted the entire sum of the loan. This is quite logical, because in recent years the vast majority of buyers do not underestimate their expectations and try to borrow after objective consideration of all risks rather than at the limit of their capabilities. For example, SEB statistics shows that in 2014 residents usually borrowed for a period of 22 years and the average loan for residential property was about EUR 39,000, that is, only by 5% higher than the average loan in 2013. It should also worth to remember that the majority of residential property in Lithuania is purchased using own funds, so these amendments to the terms of borrowing should not, in principle, change the behaviour of the majority of potential buyers, especially where property is purchased in other than the major cities. It has been announced that the Responsible Lending Regulations will take effect in November, but not in July this year, so in summer and autumn a faster decision making regarding residential property can be expected. However, it is hardly possible to expect a more active market because these amendments to regulations will mostly motivate young people (around 25 years of age) who expect to borrow for a period of over 30 years.

Potential buyers may expect further stability in housing sales prices as there have been no significant changes recorded in the country’s major cities and it is unlikely that there will be any in the nearest future. Following negative price changes recorded in the country’s major cities at the end of 2014, the overall price curve is slightly climbing again only in the capital city. In Q2 2015, prices for apartments in Vilnius increased by 1.2%, the average price amounting to 1,298 EUR/sqm (+15 EUR/sqm). Prices for apartments in new residential districts increased most in the first half of the year – by 2.5%. Meanwhile, in the same period in Panevėžys apartment prices rose by 0.1% and the average price increased to 530 EUR/sqm (+1 EUR/sqm). No changes were recorded in Kaunas, Klaipėda and Šiauliai and the average price at the end of Q2 was 940 EUR/sqm, 975 EUR/sqm and 559 EUR/sqm respectively.

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At the end of Q2 2015, the Lithuanian residential market gained momentum. Although the beginning of the year did not promise any major movement in the market, results in June injected some optimism. According to the State Enterprise Centre of Registers, in Q2 2015, 52% more house purchase and sale transactions and 23% more those of apartments were concluded as compared to Q1 2015 in Lithuania. In Q2 2015, on average 820 transactions for houses and 2,350 transactions for apartments were concluded per month. Of course, early in the year there is usually little activity in the housing market, but the results of Q2 2015 were quite good. Although compared with the same period 2014, the total number of housing transactions in Lithuania was by 12% smaller, the situation was similar to the 2013 indicators, when the market was also active. In June this year, the housing sector was unexpectedly very active – the number of purchase and sale transactions for apartments and houses in Lithuania has been so far the largest this year.

Despite geopolitical challenges, the country’s overall economic situation remains positive and this continues to encourage both the construction sector and steady growth in housing demand. It is likely that such improvement in the housing market activity could also be attributed to temporary factors. This year, amendments to Responsible Lending Regulations were proposed to the public that were to take effect in July this year. Tightening of lending conditions may have prompted potential buyers to purchase homes before this date. However it was hardly the essential factor that determined a surge in housing transactions in June, because, according to the Bank of Lithuania, had the planned amendments been in force in 2014, considering possible modifications in loan characteristics, still 99 out of 100 customers would have been granted the entire sum of the loan. This is quite logical, because in recent years the vast majority of buyers do not underestimate their expectations and try to borrow after objective consideration of all risks rather than at the limit of their capabilities. For example, SEB statistics shows that in 2014 residents usually borrowed for a period of 22 years and the average loan for residential property was about EUR 39,000, that is, only by 5% higher than the average loan in 2013. It should also worth to remember that the majority of residential property in Lithuania is purchased using own funds, so these amendments to the terms of borrowing should not, in principle, change the behaviour of the majority of potential buyers, especially where property is purchased in other than the major cities. It has been announced that the Responsible Lending Regulations will take effect in November, but not in July this year, so in summer and autumn a faster decision making regarding residential property can be expected. However, it is hardly possible to expect a more active market because these amendments to regulations will mostly motivate young people (around 25 years of age) who expect to borrow for a period of over 30 years.

Potential buyers may expect further stability in housing sales prices as there have been no significant changes recorded in the country’s major cities and it is unlikely that there will be any in the nearest future. Following negative price changes recorded in the country’s major cities at the end of 2014, the overall price curve is slightly climbing again only in the capital city. In Q2 2015, prices for apartments in Vilnius increased by 1.2%, the average price amounting to 1,298 EUR/sqm (+15 EUR/sqm). Prices for apartments in new residential districts increased most in the first half of the year – by 2.5%. Meanwhile, in the same period in Panevėžys apartment prices rose by 0.1% and the average price increased to 530 EUR/sqm (+1 EUR/sqm). No changes were recorded in Kaunas, Klaipėda and Šiauliai and the average price at the end of Q2 was 940 EUR/sqm, 975 EUR/sqm and 559 EUR/sqm respectively.

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