Insight
EIKA Development Project Manager Tomas Žiaugra:
At the end of 2020, it seemed that Vilnius housing sales had already reached their peak and there was nowhere to go higher, but the first quarter of 2021 reveals that we are still spinning at an extremely fast and dizzying “bugivugi” rhythm. One record beats another: 1,025 apartments sold in March – an absolute monthly record; 2,664 apartments sold in the quarter – an unprecedented quarterly record; annual growth – 93 percent. It seems that purchasing an apartment during quarantine has become either a very fun pastime or a sporting interest in spending money, because there is a fear of its depreciation.
Obviously, developers, builders and others earning from this sector can applaud standing up and enjoy increasing income. We can also be happy that at least one economic sector is not asking for state support during the pandemic, but is just filling the state budget and maintaining jobs. However, as long-term and experienced market participants, this is really scary for us and we are starting to doubt the sustainability of such phenomena. First of all, 60 percent. sales are recorded in construction that is still in progress, which means that purchases are made from drawings without assessing the final quality of the product and the reputation of the developer, or whether that housing will actually be built. There are only 672 vacant apartments on the market in houses under construction, i.e. 4/5 of the vacant apartments are in the midst of construction. Secondly, the supply is drastically melting. During the quarter, the supply decreased from 3802 to 3241, i.e. 15 percent, although developers were very active – they offered 2100 new apartments to the market during the quarter. However, this is not enough for the market to stabilize and the supply to hold. Buyer activity is higher than the developers’ capabilities. Such an avalanche of buyers distorts housing prices, the growth of which may lead to reduced housing affordability. Prices rose by 4.3 percent during the quarter. The largest increase is in the economy class, where prices increased by 6.6 percent. per quarter. If there was a normal 5-6 percent. annual growth in the market, then we currently have a similar number per quarter.
So, the question remains as to when all these trends will bring the market to its knees in the dizzying rhythm of “bugivugi” or return it to sustainable growth.
Facts
- In the first quarter of 2021, 2,664 apartments were sold/reserved in the primary housing market of Vilnius, which is as much as 59 percent more than the record-breaking fourth quarter of 2020 (1,674 apartments) and as much as 93% more than the first quarter of last year (1,383 apartments)
- The same number of economy and middle-class apartments were sold during the quarter – 45 percent of transactions each, 10 percent of sales went to the luxury housing segment.
- The number of buyers of economy-class housing increased the most during the year – by as much as 109 percent: 1,206 apartments sold in Q1 2021 compared to 578 apartments in Q1 2020. Middle-class sales grew by 86 percent during the year compared to Q1 2020 (from 652 to 1,215), while luxury segment sales grew by 59 percent (from 153 to 243).
- During the first quarter of 2021, the number of vacant apartments on the market decreased by as much as 15 percent and currently stands at just 3,240 vacant apartments.
- Only 21 of this warehouse consists of completed and under construction apartments, while the remaining 79 percent or 8 out of 10 apartments for sale are still in the early stages of construction.
- Similarly, the supply of unsold apartments decreased in the economy and middle classes, where the number of vacant apartments decreased by 17 percent and 16 percent during the quarter, while the supply of luxury segment housing decreased by almost 20 percent.
- In the first quarter of 2021, despite the quarantine, developers remain active – 2,100 new apartments were offered to the market, i.e. 7 percent more than in the last quarter of 2020, when construction and sales of 1,960 apartments began.
- During the first quarter of 2021, the price of new apartments in Vilnius grew the most in the economy segment – by as much as 6.6 percent, 0.6 percent in the average segment, and 3.0 percent in the luxury segment. The price level currently reaches 1,830 EUR/sq m in the economy segment, 2,340 EUR/sq m in the average segment, and 3,190 EUR/sq m in the prestigious segment.
- Due to the above-mentioned price changes, the overall average price of new housing in Vilnius increased by 4.3% during the quarter: from 2,175 EUR/sq m at the beginning of the year to 2,270 EUR/sq m at the end of March 2021.