Analytics, Banks, Financial Services, Lithuania, Markets and Companies, Real Estate

‘The overall annual growth in housing prices in the country, Vilnius in particular, has accelerated. This was due mainly to low interest rates, moderate economic growth, rising wages and salaries, increasing expectations regarding increases in housing prices, emigrant remittances, buy-to-let housing and other factors. Nevertheless, it is often forgotten to take into consideration long-term economic, demographic and emigration challenges, other risks, as well as the fact that such an abundance of favourable factors is rarely long-term. On the other hand, the latest statistics shows that households are not excessively in debt and bank crediting is reasonable,’ said Tomas Garbaravičius, Member of the Board of the Bank of Lithuania, at the fourth annual conference of the Bank of Lithuania.

In the capital city, an increase in resident income, the formation of a specific favourable demographic situation in Vilnius, active crediting by banks and low interest rates boost the possibilities for residents to purchase housing. Residents more often look for housing in attractive places closer to the central part of the city, giving the priority to new-construction or higher-quality housing, the price of which is higher. ‘Nevertheless, professional market participants say they would currently think twice now before buying housing in a more expensive segment of Vilnius,’ claimed Garbaravičius.

Surveys conducted by the Bank of Lithuania show that the expectations of real estate (RE) market participants and creditors regarding house price increases are currently balanced; however, residents are becoming increasingly optimistic. From the financial stability perspective, the fact thatbuy-to-let housing is becoming an attractive investment amid low interest rates, when deposits with banks do not generate expected returns, and alternative investments, generating higher returns and raising lower risks, are few,  also raises concerns.

‘The housing market does not seem to exhibit obvious signs of speculative activities, except for the increasing share of secondary flats, mainly those for buy-to-let, which, at the end of 2016, accounted for 12.3 per cent of the entire stock of housing, an increase of 0.9 per cent over 2015 and 2016. And yet residents should be cautious when listening to the talks of RE developers that housing will continue to increase in price – before purchasing housing, they should responsibly assess their family’s financial situation and its likely developments, as well as how loan instalments may change with a rise in the interest rate’, says Andrius Škarnulis, Head of the Macroprudential Analysis Division.

Those buying housing for buy-to-let purposes increase the demand for housing and raise prices; however, with a decline in the number of tenants or rental prices, they would probably be the first to hurry to sell those secondary flats, especially where they have been purchased with borrowed funds. The Bank of Lithuania will continue to closely monitor the RE market situation and will take measures established in the Responsible Lending Regulations and other macro-prudential tools for managing risk.