Renaissance in RE Market. The Increase in housing prices by 10-15 percent is forecasted for 20142014-05-07

According to the analysts of Inreal, the transaction growth rates, customers’ expectations, actions and growing prices in the housing market of the country, proclaim a new boom in this RE segment. In Q1 of 2014, there were 2,620 of apartment purchase-sale transactions conducted in Vilnius – i.e. by 51.2 percent more than in the corresponding period in 2013. Over the quarter the real estate developers had sold about 1060 new apartments – i.e. even by 2.4 times more that in the corresponding period in 2013. 

“If current transaction growth rates remain, more than 4.000 of new construction apartments may be sold this year – i.e., by two-thirds more than in 2013, and as much as during the peak of the previous boom. In the meantime, it was planned to supply the market with 3.000 apartments for this year – by a third more than in 2013, but it is evident that it may be insufficient”, - stated Arnoldas Antanavicius, the Head of Consulting and Analysis Department of Inreal. According to him, the supply of new apartments in the blocks of flats, built in Vilnius, is decreasing overnight – it has shrunk from about 1,165 to 635 over the first three months of this year, therefore the apartments “on drawings” are prevailing in the supply. As a result of further intensification of RE market, the majority of transactions will be conducted “on the basis of drawings”, what allows the RE prices to increase. 

The overall rate of new construction apartment prices in Vilnius reached about 5,373 LTL/sq. m. in the end of the quarter and had increased by approx. 8.7 percent over the year. The increase in prices in the new construction segment intensifies the sellers’ expectations in the secondary market, who are expecting to get a price, which is higher by 10-20 percent than 6-12 months ago. “If such trends remain, it is realistic to expect that over 2014 the RE prices in the capital city may increase averagely by 10-15 percent, depending on the segment and the year of construction”, - stated A. Antanavicius. 

According to the analysts of Inreal, for the time being the intensification of the markets is being only observed in other major cities and the market of “secondary home” – the number of transactions is increasing and sellers’ expectations as regards prices are growing, while the overall average of prices in the markets remains stable. 

The climate in the commercial segments are also becoming better. The market of business centres in Vilnius is experiencing its renaissance – 6 modern business centres (73,500 sq. m. of rentable area) are being built and the construction works of several more centres will be launched in the nearest future. After a 5-year break, the construction works of a business centre for rent had launched in Kaunas. Vacancy rates continued to decrease in all cities, more and more preconditions for prices to grow occur. 

In early 2014, the growth of retail trade has been further observed in Lithuania. The growing domestic consumption and the remaining minimum vacancy rate create a favourable environment for investments in the segment of shopping centres – new RE objects are being developed or their development is expected to be launched in all major cities of the country (at least 6 large shopping centres, about 88,200 sq. m. of rentable area in total). 

The results of the Lithuanian industry sector, which were decelerated in late 2013, have also been observed in early 2014, however, it should be noted, that the representatives of the industry sector evaluate the prospects of activities for the nearest future more and more optimistically. Intensified investments in the development of logistic centres, which started in 2013, have further continued in the major cities – at least 4 modern logistic centres for rent (about 52,000 sq. m. in total) and at least 8 built-to-suit modern warehouses are being built or are planned to be built. 

“As a result of recovering RE market, the amount of residential as well as commercial premises, that are being built currently, is growing, therefore the transactions on unfinished RE, when the purchasers and sellers sign corresponding contracts prior to RE construction completion, is quite a relevant issue at present”, - stated Simona Oliskeviciute-Ciceniene, the Manager of Real Estate and Infrastructure Practice Group of Raidla Lejins & Norcous. According to her, in contrast to the cases, when a finished real estate object is purchased, in this case a purchaser has no possibilities to see and evaluate an actual property – the forthcoming result can be seen only in project documentation. This is one of the most relevant risks, that is faced by a purchaser – whether RE, which is being under construction at the moment of contract conclusion, is going to meet the purchaser’s expectations and be of high-quality.

“When investing, in such cases, it is particularly important to assess the existing situation, as well as consider the possible changes in a longer period, which may have influence on both the structure of income and costs, as well as a long-term value and liquidity of RE”, – emphasized S. Oliskeviciute-Ciceniene.

 

 

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