News of the managed companies
Alternative tools of funding – an opportunity for RE market to maintain growth2015-08-07
In comparison with the second quarter of the previous year, Lithuanian economy has grown by 1.3 percent this year. Comparing the first and the second quarter of this year, the growth was 0.6 percent. The start of the first half-year of 2015 was particularly sluggish in the Lithuanian real estate (hereinafter – RE) market; although the situation started to improve in the second quarter, however, the statistics of the purchase-sale transactions in the first half-year and second quarter were worse than in the corresponding period in 2014. In the second quarter this year, the liquidity of RE market in different segments in Lithuania equalled to the corresponding period in 2013 and was significantly lower than in the beginning of 2014.
In the first quarter of 2015, the highest activity was in the capital city, which significantly overtook the markets of other cities
There were 4,100 apartment purchase-sale transactions concluded in this period. RE developers have sold about 1,820 new-construction apartments, i.e., only by 1.5 percent less than in the corresponding period last year. According to Arnoldas Antanavičius, the Head of Consulting and Analysis Department of Inreal, a high number of transactions was resulted by less active communication as regards the conflict between Russia and Ukraine, as well as the initiatives of the Central Bank of Lithuania to strengthen the rules on responsible lending, in respect of which some of potential buyers could no longer purchase the desired housing. “We forecast that the sales of new-construction apartments will be decreasing in the second half-year; especially, in the economic class segment”, – stated the analyst. On the other hand, the increase in sales of higher-class apartments is also noticed: spacious apartments (100-150 sq.m. and more) are usually acquired from own funds. RE developers are often compelled to reconstruct several apartments into one large apartment, in order to meet the demand of the required housing. This shows, that the market is changing, and the developers are trying to adapt to it.
The new-construction market is significantly more moderate in other cities. About 150 apartments were sold in Kaunas, about 80 apartments – in Klaipeda, about 95 – in Palanga, and about 20 – in Neringa. In comparison with the corresponding period last year, the number of transactions on new-construction apartments has decreased by 26.1 percent in Kaunas, by 50 percent – in Klaipeda, by 57.8 percent – in Palanga, and by 75 percent – in Neringa.
Despite the new currency, the slowdown in economic growth, “the war of sanctions”, indefinite geopolitical situation, and Greek crisis, the trends in the commercial sector have remained positive in the first half-year of 2015. Three business centres were finished in Vilnius; they supplied the market with about 16,600 sq.m. GLA. Two business centres were finished in Kaunas (GLA - about 4,500 sq.m.). So far, RE developers are only gaining momentum, because 10 new business centres are expected to be opened in Vilnius within the next two years, what should lead to additional GLA – about 142,600 sq.m. The construction of a business centre (14,000 sq.m.) is foreseen in Kaunas. Such development rates were also observed during the last boom in 2008.
In the first-half of 2015, no new shopping centres were opened in the country. The expansion works of “Babilonas I” were finished in Panevezys. In comparison with the corresponding period last year, th increase in the average vacancy rates in the segment of shopping centres in the country is observed.
In the first-half of 2015, the Industry Confidence Index was improving and reached the level of 2013. Moreover, the forecasts related to exports and output levels in the sector remained quite positive. It seems, the industrial and warehousing segment representatives managed to adapt to the changes in business environment, therefore, it is possible to predict, that this segment should maintain a moderate growth.
According to the analysts of Inreal, they notice a trend that the number of people, willing to invest into industry expansion, is decreasing due to a quite delicate economic growth, as well as the geopolitical risks. Much more often the industrial and warehousing segment representatives are looking for the opportunities to “employ” their profit safely. One of the methods is to acquire industrial and/or warehousing objects, in order to avoid rental costs. This is rather a new phenomenon in the Lithuanian industrial and warehousing segment, since the majority of representatives in this segment was avoiding investments into RE for several years from the emergence of the crisis, by considering it as freezing of funds, required for business expansion; however, the situation has already changed and the actors in the market are investing into RE more often.
Alternatives for traditional RE business funding are moving on their way forwards
Recently, a more conservative risk management, moderate lending policy and strict lending conditions applicable by banks and other credit institutions more often make people consider the alternatives to traditional RE business funding.
Issued corporate bonds, crowdfunding, peer-to-peer lending – the financial measures, which are rapidly becoming popular throughout the world. They ensure the availability of funding for more companies, especially, in small and medium-sized enterprises. In turn, it allows large companies to diversify their business funding resources and provides flexibility in managing lending-related risks.
According to Simona Oliskeviciute-Ciceniene, Head of Real Estate Infrastructure of “Cobalt” practice group, so far the alternative RE business funding tools are more discussed in Lithuania only. Moreover, a rough legislative framework does not promote significant changes and a breakthrough in this field. However, the P2P (peer-to-peer) lending, which is increasingly growing in Lithuania, is a perfect reflection of the openness to financial novelties and the climate in financial markets. This is the matter of time before we get P2P platforms for businesses, which are already operating in other countries. The public sector also sees the demand of alternative funding opportunities for business – the Bank of Lithuania, the Ministry of Finance and the Ministry of Economy have already drafted a package deal, the implementation of which could provide the opportunity to use crowdfunding, as well as expand the opportunities for companies to issue and distribute bonds. Let’s hope that these alternatives of funding will become a reality in the nearest future.
JSC “Inreal GEO”, JSC “Inreal valdymas” and JSC “Inreal”, provides probably the widest spectrum of services in Lithuania, related to real estate. Inreal group companies belong to SC “Invalda privatus kapitalas”. About 90 employees are currently working in Inreal group; mediations in lease or sale of more than 550 thousand sq.m of commercial premises, over 550 residential housing objects, and over 300 land plots. The company mediates in 50 residential housing projects, 24 investment projects, or their portfolios. More than 4,900 valuation reports and about 80 consultations (feasibility studies, investment memorandums, and market research) are being drawn up annually. The value of asset of valuation is above 725 million euros. Company offices or representations are operating in Vilnius, Kaunas, Klaipeda, Siauliai, Panevezys, Mazeikiai, Alytus, Plunge and Utena. Currently JSC "Inreal Valdymas" develops two real estate projects: houses in Nida "Kopų vetrunges" ("Dunes weathervanes"; „Kopų vetrunges“) and apartments and comercial premises in Klaipeda oldtown "Danes uzutekis" ("Danes Bay"; „Danes užutekis“).