2019.10.08 13:53

Growing wages and ECB policies fueling Lithuania's real estate market

Real estate sales have grown significantly in Lithuania, with buy-to-let deals accounting for a fifth of all purchases. Home sales – and prices – have been fueled by growing wages as well as the European Central Bank's policies.

Thirty-four-year-old Rima Kavalnienė and her family with two children moved to a new house in a suburb of Vilnius a few months ago. Building a home was a long-held dream and the biggest challenge was securing a bank loan.

“My husband and I make well above the minimum wage, but several banks turned us down immediately, saying we would not be able to build a house ourselves,” Kavalnienė tells LRT TV. “Several other banks spoke to us, checked our situation, but also refused. And only the fifth one agreed to give us a loan.”

Banks have been spoilt for choice, as clients are applying for mortgages in growing numbers. According to the Centre of Registers, the sales of apartments and houses grew 5 percent this year. The growth was particularly intense in Klaipėda, Lithuania's third city, where sales of single-family houses grew 11 percent compared to last year.

“Married spouses account for half of the deals, the other half come from single people. Typical family borrowers are between 40 and 59 years of age with two children. Among the single borrowers, 57 percent are women. A typical home buyer is a 18 to 29-year-old woman without kids,” according to Paulius Rudzkis of the Centre of Registers.

Buyers are also looking for real estate to invest, typically a small flat to let. Such deals grew particularly in Kaunas, Lithuania's second city. Overall, one in five apartments is purchased to let.

In Vilnius, such investors are most interested in real estate in Senamiestis, Naujamiestis, Žirmūnai, Šnipiškės and the area around the railway station. In Kaunas, Centras and Žaliakalnis are the most popular neighbourhoods.

As demand grows, so do the prices, real estate agents say.

“Prices in Vilnius, Kaunas, Klaipėda grew almost steadily, some 5-6 percent annually,” Saulius Vagonis, a department head at Ober-Haus, tells LRT TV. “In smaller towns, such as Šiauliai, Panevėžys, the growth exceeded 10 percent, it was 12-13.”

Housing in Vilnius is about 15 percent more expensive now than three years ago, he adds. However, wages grew almost 30 percent over the same period, so Vagonis believes there is no housing bubble.

People are investing in real estate because returns from deposits and bonds have been very low and investment opportunities limited, economists say.

One of the problems is the European Central Bank's (ECB) policies that have not been tailored to EU countries like Lithuania, says Marius Dubnikovas, an associate professor at Vilnius University.

“The ECB is stimulating the economy with an eye on the big countries like Germany, France, Italy or Spain. Lithuania does not even need the stimulation, our economy and wages are growing. On the contrary, we might need some cooling,” he tells LRT TV.

“The ECB policies pour money into the market, some of that money finds its way to Lithuania and we have to park it somewhere.”

Buying real estate as a safe and at least minimally profitable investment is popular in Western Europe as well as in Lithuania, Dubnikovas adds.

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