Insight
Martynas Žibūda, Deputy Director General of EIKA:
Vilnius’ new housing market has been shrinking for the fourth quarter in a row: in the first half of this year alone, 64% fewer homes were sold than in the same period last year (1,526 apartments compared to 4,225). This is due to a whole bunch of cumulative reasons.
If at the end of last year, apartment sales were declining due to insufficient supply, this year the psychological shock caused by the war in Ukraine contributed to this, and in the second quarter of the year, home buyers were discouraged by soaring housing prices due to construction costs and talk of an economic recession both in Lithuania and around the world.
It seems that, having so far emphasized the insufficient choice of housing, from now on we will increasingly talk about the reasons that force residents to abandon the purchase of a new home. Rising housing loans, a general real estate tax, and the desire to tax residents who have purchased housing for rent are not adding strength to the real estate market.
Despite declining demand, the supply of vacant apartments stuck in the lows, drastically increasing construction costs and disrupted supply chains mean that the price of new housing in Vilnius increased by an average of 4.7 percent in the second quarter. The annual growth reached 24.4 percent. The mark, which shows that new housing in Vilnius has become more expensive by an average of 570 eur/sq m. per year. from 2360 eur/sq m. in July 2021 to 2935 eur/sq m. currently.
Housing supply is likely to grow faster than demand in the coming quarter, supply chains will normalize, and housing price growth will slow. All of this will lead to lower construction and sales volumes at a similar price level.
The need for new housing in Vilnius remains high – the number of people living in the capital is growing and their incomes are still increasing. In addition, businesses and their key well-paid employees are actively moving from Belarus, Russia and Ukraine to Vilnius. However, the market recovery is limited by worrying signs on the global economic horizon and falling expectations of residents. All this is stopping “virtual” apartment transactions, because the majority of apartments currently under construction in Vilnius have already been sold, and they still need to be built. Both interested parties – developers and home buyers – are at a crossroads: some have to decide on new projects with their eyes closed to the uncertain construction price, while others have to decide on a purchase, paying more attention to the developer’s reliability and project risk management. It seems that early “virtual” transactions will be replaced by purchases made at a later stage of project implementation, but we will probably feel this only after a good six months.
Facts
- In the second quarter of 2022, 570 apartments were sold. The result of the quarter is 40 percent lower than in the first quarter of 2022 (956 apartments) and even 63 percent lower than in the second quarter of 2021 (1,561 apartments).
- Comparing the first half of 2022 (1,526 apartments) with the first half of 2021 (4,225 apartments), the trends are similar – 64 percent fewer apartments were sold than last year.
- The most popular housing types in the second quarter of 2022 remained economy class – 57 percent of apartments sold (325 apartments), mid-range apartments (215 apartments) accounted for 38 percent of sales, and luxury housing accounted for only 5 percent of apartments sold during the quarter (30 apartments).
- During the quarter, the number of economy-class housing buyers decreased the most – 48 percent, while middle-class sales decreased by 39 percent during the quarter compared to the first quarter of 2022. Prestige-class sales decreased by 33 percent during the quarter.
- During the second quarter of 2022, the number of vacant apartments on the market increased by 4 percent and currently stands at 2,440 vacant apartments on the market, compared to 2,344 in the previous quarter.
- During the quarter, the share of completed and under-construction apartments on the market increased from 11 percent to 14 percent (352 apartments), while the remaining 86 percent (2,088 apartments) of apartments are visible only in drawings.
- During the quarter, the number of vacant apartments changed the most in the middle-class segment – it increased by 27 percent (to 1,087 apartments), in other segments the number of vacant apartments decreased by 3 percent (to 1,243 apartments) in the economy class and by 21 percent in the luxury segment (only 110 apartments).
- During the second quarter of 2022, developers offered about 670 new apartments to the market, which is 29 percent less than the previous quarter (950 new apartments).
- During the 2nd quarter of 2022, the price of new apartments in Vilnius grew the most in the average segment – as much as 10.6 percent, in the economy and luxury segments prices grew by 7.1 percent and 2.3 percent, respectively. The price level currently reaches 2490 eur/sq m in the economy, 3410 eur/sq m in the average and 4600 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 4.7 percent during the quarter: from 2,810 EUR/sq m in April to 2,935 EUR/sq m in July 2022. And the annual growth over 4 quarters reaches as much as 24.4 percent.