Over the last decade, from the beginning of 2010 to the second quarter of 2021, real estate (RE) rental prices in Lithuania have been growing almost the fastest among the European Union (EU) countries. For investors, this is a sign that investing in real estate leasing projects continues to be popular.
Rental prices grew the most in Estonia, by about 142 percent, followed by Lithuania, which rose by 109 percent, and Ireland, by 66 percent, according to Eurostat. Real estate rental prices in Lithuania and Estonia increased mainly due to the capital effect – high mobility of young people to Vilnius and Tallinn, investment manager Deividas Urbanovičius, investment manager of the real estate rental project platform InRento. They are attracted both by better study opportunities and by foreign capital companies emerging in the capitals, offered various job positions and more attractive remuneration.
“Both Vilnius and Tallinn are the cities where the population is growing. It happens that young people come here to study, after which they stay to work, and in the long run start to start families. Since 2010 The official population of Vilnius increased by 5% and that of Tallinn by almost 8%. However, both during studies and at the beginning of the career, often young people need to acquire real estate due to the initial contribution, renting it becomes more important than buying it, ”says D. Urbanovičius one of the reasons.
Also, according to D. Urbanovičius, the way of life of young people is no less important – for them, own housing is not the main priority. The opposite is often the case – mobility and the possibility to easily change residence when the situation changes, making renting a home a more attractive option than buying one’s own property.
“Rising prices are also being boosted by the growing purchasing power of young people. More and more people work in foreign capital companies, where those who work in the field of fintech, especially IT, receive a higher-than-average salary, so they do not see any problems in paying a higher price for renting a house they like, ”says D. Urbanovičius.
The situation in Ireland is somewhat different: according to D. Urbanovičius, the increased rental prices here are determined by the low supply of developed objects, high immigration and the number of young people with a high percentage. This leads to demand almost doubling supply, with property owners raising rental rates.
The attractiveness of rentals continues to grow
Looking at the last decade in Lithuania, the growth of real estate rental prices has exceeded the selling price of housing, but the boom in real estate prices in recent years may change.
“Since the introduction of the euro, Lithuania is among the countries with one of the fastest GDP growth rates in the euro area, the average wage is growing by almost a tenth every year, so is inflation, so it is natural that both housing sales and rental prices are rising.
On the other hand, during the pandemic, a significant number of people decided to change their housing to a larger one, saved the initial contribution or just decided to invest, then we are currently monitoring the demand for housing, which is not being met by real estate developers. As a result, real estate sales prices say about 20 percent per year, and the growth of rental prices lags behind and reaches about 12 percent, ”D. Urbanovičius said.
This situation is leading to declining housing affordability in the country, which may make renting an even more popular option.
“Compared to Western Europe, Lithuania has a very high number of owner-occupied dwellings – more than 80 percent live there. population of the country. By comparison, in Western Europe the figure is much lower at around 50%. The rising price of real estate in Lithuania will undoubtedly influence people’s choices – gradually more and more people will choose to rent their own home instead of buying it, ”says D. Urbanovičius.
Although the news may not seem pleasant to Lithuanians, for whom it is important to have their own housing, their fact may suggest that it is neither good nor bad.
“People had their own housing in the Soviet system, but this is not known to guarantee a quality life. There are people who live in rental housing for a lifetime, but get excellent infrastructure and all the necessary services nearby. So owning a home does not necessarily equate to a great quality of life, ”he argues.
Fintech opens up more investment opportunities
The interviewee states that the growing Lithuanian real estate rental market is becoming more and more attractive to investors.
“First of all, it means that large-scale investors are coming to the market, real estate developers who are focused not only on selling housing, but also on renting it,” he says.
Another positive development is greater market transparency. For developers who are reliable in the market, it is likely that small shadow transactions and tax evasion, because large companies are likely to set standards of transparency or even security – contracts and obligations that will make the tenant feel more assured, says D. Urbanovičius.
According to him, it is important not only for institutional investors, but also for individuals to invest in the market of real estate rental projects.
“Investing in real estate in Lithuania is one of the most popular investment directions. The reasons for this range from the lack of a culture of investing in securities to the benefits of physical wealth, such as the opportunity to live in it, and so on. In addition, with the help of financial technology, there are opportunities to invest in projects of this type, even several thousand euros, and it is not alone, but with a team of professionals, ”he says.