Real estate experts and economists are not surprised – rental yields have started to grow again, the interest rate cut by the European Central Bank (ECB) shows good prospects, purchasing power is rising and the expectations of companies in the construction sector are improving.
Landlords are increasing their portfolio
“Currently, people who already have a portfolio of rental apartments and are looking for additions are mostly interested in investing in apartments. Seeing that in the last year about 3.4 percent the increased rental prices continue to grow quite consistently and the rent brings returns, investors are starting to look for a third or fourth object”, says Edita Gudauskienė, sales manager of real estate developer Kaita Group.
According to her, there are quite a few people who buy apartments “from drawings”.
“Experienced investors know that when they buy an apartment that has not yet been built, so to speak – “from the drawing”, they will receive at least two price increases: the first – when the object is already built, the second – when the environment is fixed, the infrastructure is improved”, says E. Gudauskienė.
Earnings in this case largely depend on the stage at which the deal is concluded. She calculates that if at the beginning of the construction the housing was bought “from the drawing”, and the construction lasted approximately 12-16 months, its price would increase by about 8-10 percent by the end of the construction, and it would increase again after the completion of the maintenance work. She gives an example: according to the calculations of Kaita Group analysts, in the apartment project “Newton” of the newly formed Viršuliškii Skyscrapers district, up to 10 percent is predicted due to changes in the area alone. price growth.
The mood is improving
Aleksandras Izgorodins, an economist at Citadelė Bank in Lithuania, says that three factors will breathe life into the real estate purchase and rental market.
“The European Central Bank (ECB) recently reduced the base interest rates for the second time and the head of the bank made it clear during the press conference that further interest rate cuts await the euro zone. The market expects them to take place this December and next year in January, March and June,” says the economist.
Company photo/Aleksandras Izgorodin
According to him, such forecasts also contribute to the currently observed growth in housing loans. In July, the volume of new home loans was the highest in the last 10 months and reached a total of 152 million. euros. A. Izgorodin predicts that although the annual decline in the volume of housing loans reached 6.9 percent this summer, in the next few months the negative sign may disappear and the situation may change to the side of growth.
“Another good signal is the expectations of companies in the construction sector. This August, the mood of Lithuanian construction workers was the best since 2023. of March Their opinion about the volume of orders and employment is improving, the number of companies suffering from a lack of orders is decreasing,” notes A. Izgorodin.
Rents are back in the growth zone
The Vilnius rental market experienced a rather extreme “ride” due to the war in Ukraine: in 2019-2021 slowly and steadily growing, in 2022 prices shot up: between February and August, price growth reached 23.3 percent, there was a shortage of rental housing.
“As supply filled, prices fell and then returned to their normal state of consistent growth. From last year to August of this year, price growth reached 3.4 percent. and they continue to grow a little, despite the fact that at the end of August, aruodas.lt had a record number of housing rental ads in the last three years”, shares E. Gudauskienė.
She adds that she sees rental prospects even as the market fills up with new housing, as Vilnius is growing in terms of population. During the last year, permanent residents in Vilnius increased by 15,572, and their number reached 602,408.
It is advised to aim for the investment to pay off in an average of 15 years
Kaita Development’s sales manager says that she immediately distinguishes people who buy housing for investment for the first time. They need to explain the contracts in more detail, help calculate the payback.
“There are situations where it would be too expensive to learn from your own experience instead of from other people’s advice. One of them is the profitability of investment housing. In my opinion, the optimal investment in housing is when the price of the housing returns on average within 15 years when renting it – therefore, when choosing a housing investment, it is necessary to calculate the payback period”, suggests E. Gudauskienė.
She also advises choosing housing for investment outside the city center, because the price of such housing is lower, and you will be able to find a tenant both in one place and in another, especially since the difference in rent prices is not very large.
The size of the apartment is also important. “One or two rooms, 28 – 42 sq.m. m apartments are of particular interest to young professionals, students or people who live alone, as they are cheaper and easier to maintain. Larger, three- or four-room apartments are mostly of interest
families with children, which make up only a small part of tenants. Although the rent received for apartments with a larger square footage is higher, their payback takes longer”, E. Gudauskienė offers to pay attention.
Estimates maintenance costs
When evaluating whether to buy an apartment for investment, she suggests including both its maintenance costs and the need to invest in improving its condition in the calculations.
“This is a common mistake of investors: when buying a home, they do not estimate the administration, heating, elevator and other maintenance costs that will be incurred even when the apartment is uninhabited. In addition, the condition of the building in which the house is to be purchased is very important. When buying aftermarket, you may soon have to invest in its repair or renovation. And if you buy a new apartment, with a guarantee – you won’t have to invest in it for the next 20 years”, notes E. Gudauskienė.
She summarizes that the return of investors to the market responds to broader trends – the decline in interest rates predicted by economists, the growth of the capital’s population, the return of rental yields to the growth curve and others.
“Currently, the rental yield has increased and reaches 5.2 percent, while at the same time the number of agreements in the primary apartment market is growing: this August it was about 51 percent.” higher than a year ago. In other words, with the growth of the GDP and the increase in the income of the residents, new apartments are snapped up quite quickly, while the rental income remains stable and somewhat increasing”, concluded E. Gudauskienė.
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