This post was automatically translated into English
The first eight months of 2007 suggested a new market trend – the number of land plots suitable for multi-storey construction for sale is increasing, and their prices are not only no longer rising, but are actually falling.
Eight months of 2007 suggested a new market trend – the number of land plots suitable for multi-storey construction for sale is increasing, and their prices are not only no longer rising, but are also falling. Even last year, the limits of land appreciation were not visible, because for the past four years land prices have been moving along the same trajectory – appreciation -, sometimes pausing, sometimes stopping again. Now they have clearly turned back.
According to real estate developers, this happened because the prices of land suitable for high-rise construction have already reached their upper limit, construction costs have also risen, and real estate development margins are shrinking.
Therefore, companies whose main activity is not real estate development, having acquired land plots for speculative purposes, are no longer able to develop them and decide to sell those plots instead of building something on them. Foreign investors also no longer see the opportunity to quickly and speculatively make money from land, so they no longer buy it, and the increased supply weighs down land prices.
“A year ago, a one-acre plot of land intended for multi-storey construction in the residential districts of Vilnius cost about LTL 85,000, and today the same plot of land is already being offered for LTL 50,000,” says Viktorija Beatričė Radzevičienė, Development Director of the company “Eika”.
According to her, the price of land has stabilized. In the near future, segmentation of plots will become more pronounced, and the price of land plots suitable for construction will be more closely linked to its value and development potential. Some niche plots may still become more expensive, but this will no longer be the general trend. Record amounts will be paid only when real estate development companies need to buy and “sit” an additional acre or two in the vicinity of their developed projects in special cases, because, for example, they will not be enough to connect communications or comfortably design a building.
“Until now, the price of land has been inadequate. Now its future is clear – land that is not infrastructurally prepared, with communications not built, and planning documents not in order, will take longer to sell, and the price will definitely fall,” explains VB Radzevičienė.
On the one hand, banks no longer finance land acquisitions unless detailed plans are prepared for them. However, the market itself has also changed – during the price fever, many individuals and companies whose main activity is not real estate development invested a lot of money in land, now some of them already have cash flow problems, so they are now trying to convert part of their managed assets into money.
“All land can no longer increase in price at the same rate as it has so far. The times when speculators sold it to each other by auction, competing with each other and inflating prices, are over. When an are of land costs half a million litas, it is unlikely that any construction project can recoup such costs,” says VB Radzevičienė.
She predicts that only companies that can develop large projects will continue to engage in real estate development, while small and non-specialized companies will simply branch out and choose other business areas or real estate development niches. The times when you needed a very small amount of money to buy land, build buildings on it, and sell them easily and profitably are over.