Insight.
EIKA development leader Martynas Zibuda:
Vilnius’ primary housing market is welcoming the New Year at unprecedented heights: in 2021, a historically high number of new apartments were sold – almost 6,900. This is 41 percent more than in the pandemic 2020s and 14 percent more than in the record 2019s.
After recording the majority of transactions in the first months of the year, the number of transactions gradually decreased later. This probably created the impression of a calming market. However, the flame of the housing market only subsided visually: it was slowed down by a “lack of fuel” – a shortage of new housing projects, when the supply of vacant apartments shrank by almost 40 percent over the year, while the temperature of the flame itself reached unprecedented heat – housing prices increased by as much as 25 percent over the year.
It seems that the large imbalance between supply and demand and the resulting rapidly increasing housing prices are the most prominent factor characterizing the apartment market in 2021. Here, the more problematic issue seems not to be the “unexpected” desire and ability of residents to purchase new housing, but rather the inability of developers to respond and offer enough new products. Developers are raising questions about the bureaucratic regulation of the municipality, which has doubled the project implementation time, and without the ability to respond to increased demand, buyers have to cool off with higher prices for remaining housing.
Another factor driving up housing prices is the drastically increasing cost of land used for construction and development projects, as well as the introduction of new infrastructure and land lease taxes. All of this is leading to unprecedented housing price levels, which are reducing housing affordability and forcing residents to rent rather than own.
It seems that the first breath of fresh air – the supply of new apartments – is expected in the spring of 2022, when housing projects on state-owned land that are not yet taxed will begin. They may not reduce housing prices, but they should certainly slow down price growth, not to mention increasing the choice of home buyers.
Next year, I would like to discuss less about how to restrict or tax buyers who want to purchase housing, but to pay more attention to creating a more elastic market that is able to respond to demand: how to reduce the amount of excessive bureaucratic requirements, how to create more efficient processes, transparent requirements that apply equally to all market participants, and adapt the capacities of state institutions to changing market volumes. After all, it is precisely increased competition and the requirements set by the buyer that best regulate those qualitative project parameters that state institutions are largely trying to control.
Facts
- The result of 2021 is 6,888 apartments sold, which is an absolute all-time record for the Vilnius new housing market or 41% higher sales than last year (4,874 apartments).
- In the fourth quarter of 2021, 1,277 apartments were sold/reserved in the primary housing market of Vilnius, which is as much as 24 percent less than in the fourth quarter of 2020 (1,674 apartments) and 8 percent less than in the third quarter of this year (1,386 apartments).
- Economy-class apartment sales during the quarter accounted for 58 percent, middle-class – 35 percent. transactions and only 7 percent of sales went to the luxury housing segment. Over the year, the ranks of economy-class buyers grew the most – as much as 61, middle-class – 33 percent, prestigious – only 6 percent.
- The number of middle-class housing buyers decreased during the quarter – by as much as 34 percent: 449 apartments were sold in the fourth quarter of 2021 compared to 678 apartments in the third quarter of 2021. Sales of the prestige class increased by 14 percent during the quarter compared to the third quarter of 2021. (from 80 to 91), and the segment that grew the most was the economy class – sales increased by as much as 17 percent (from 628 to 737).
- During the fourth quarter of 2021, the number of vacant apartments on the market decreased significantly – by 19 percent and currently stands at just 2,350 vacant apartments on the market. Over the year, the decrease in supply is even greater – by 38 percent (from 3,800 to 2,350). The number of vacant apartments on the market has not been so low since 2014.
- Only 12 percent of this warehouse consists of completed and under construction apartments, while the remaining 88 percent, or 9 out of 10 apartments for sale, are still in the midst of construction and visible only in drawings. A year ago, completed and under construction apartments accounted for about 28 percent of the number of vacant apartments on the market.
- During the quarter, the number of vacant apartments decreased the most in the middle and prestigious class segments, where the number of vacant apartments decreased by as much as 26 percent and 24 percent, respectively, while the supply of housing in the economy class segment decreased by about 10 percent.
- During 2021, developers offered about 5,440 new apartments to the market, compared to the new supply in 2020, i.e. 14 percent more (from 4,760 to 5,440)
- In the fourth quarter of 2021, only 725 new apartments were offered to the market, which is almost half the number in the third quarter of 2021, when construction and sales of 1,425 apartments began.
- During the fourth quarter of 2021, the price of new apartments in Vilnius grew the most in the luxury segment – by as much as 16.1 percent, in the economy and medium segments prices grew by 7.6 percent and 8.5 percent, respectively. The price level currently reaches 2,180 EUR/sq m in the economy class, 2,900 EUR/sq m in the medium class, and 4,310 EUR/sq m in the prestigious class.
- Due to the above-mentioned price changes, the total average price of new housing in Vilnius increased by 7.8 percent during the quarter: from EUR 2,510 per sq m in October to EUR 2,710 per sq m at the end of 2021.
- During 2021, the price of new housing in Vilnius increased by almost 25 percent (from 2,175 to 2,709 EUR per sq m). Economy and middle-class housing became more expensive by a similar amount – by about 25-26 percent, with luxury housing becoming the most expensive over the year – an annual change of as much as 39 percent (from 3,100 to 4,300 EUR per sq m).